The 2026 Legislative Session (a “short” session) is in full swing and still packed with a lot of work. Legislators have 35 days to consider 250 bills. This session is focused on balancing the state biennial budget, which was passed last session before the impacts of the Federal HR1 Reconciliation (Big, Beautiful) Bill were known. Both the Governor and Senate and House Leadership have made clear that there will be cuts to programs to make up some of that gap, and that a decision to disconnect the state tax system from some of the Federal tax breaks given in HR1.

NAO did not get the green light to bring back the Nonprofit Grants and Contracts Modernization, measure SB602, that we fought hard for in the last session. The NAO Team has been scouring the bills to identify those with specific impacts on nonprofits. We have been energized by nonprofits exercising their right to advocacy and lobbying on bills pertaining to their work. These include:

  • SB1505 – which proposes to “create a workforce board for home and community-based service workers.”
  • HB4133 – which “allows tax credits for contributions by individuals to scholarship granting organizations.”
  • HB4016 – which requires public contractors to demonstrate and maintain tax compliance through a certification process as a condition.
  • HB4094 – which “requires employers who provide paid vacation time to compensate employees for all earned or accrued but unused paid vacation time when employment terminates.”

In relation to HB 4094, NAO applauds the intent behind the bill, and we ourselves pay all PTO earned by our employees at the end of their service with NAO. Philosophically, this is a good standard for our sector to uphold. The challenge the bill presents, as written, is that it doesn’t account for how public benefit funds flow and the business model of the nonprofit sector. Almost all government and foundation grants, as well as contracts, do not allow for the accrual of the dollar value of time that isn’t paid during the life of the grant or contract (i.e., you can’t charge the grant for time that hasn’t yet been taken). If a nonprofit employee is with the nonprofit for the entire life of, let’s say, a state grant through the Department of Housing and Community Services, the nonprofit will need to find private sources to accrue that PTO as a liability and later pay it out. If passed, this bill would be another example of the State passing the real costs of their program implementation on to their nonprofit partners.

NAO has communicated these concerns to the bill’s proponents, and it feels as if we’re being heard. We know some additional changes are being made to HB4094. We explained to proponents that some obvious and unintended consequences of this bill will be that nonprofits will:

  • Limit what their staff can accrue in terms of Paid Time Off (PTO);
  • Cap accruals of PTO to amounts that they can afford to pay as a future liability;
  • Require staff to take time off during grant and contract implementation and/or enact “use it or lose it” policies.

I don’t think any of these were what the sponsors intended. In this atmosphere of federal cuts and cascading cuts to state and county programs, this kind of bill will have consequences that could spell disaster for an already bruised nonprofit sector. We are hopeful that our concerns have been heard.

We’ll keep you posted as this bill moves through the session. If you have questions or concerns about how to record PTO liability when you’re holding funds to pay out these benefits, please look at NAO’s training offerings. We regularly hold programs on how cost accounting works and the things nonprofits need to be aware of when planning their future financial sustainability.

Jim White,
Executive Director, NAO

(Excerpt from NAO’s Update: February 12, 2026)