Governor Cuomo Announces Proposed Regulations to Ensure That State-Funded Providers Do Not Pay Excessive Executive Compensation or Administrative Costs
Multiple State agencies issue proposed regulations for public comment
Albany, NY (May 16, 2012)
Governor Andrew M. Cuomo today announced the release of proposed regulations to limit spending for administrative costs and executive compensation at state-funded not-for-profit and for-profit service providers.
The proposed regulations are designed to implement Executive Order 38, issued by Governor Cuomo in January 2012 to limit excessive compensation and administrative expenses at service providers that receive state funds or state-authorized payments of federal funds.
When unveiling the 2012-2013 Executive Budget, Governor Cuomo highlighted cases of extreme compensation levels at not-for-profits that receive millions in taxpayer dollars. In one case, a provider receiving $19 million annually in public funds — 99% of its annual budget — had $3 million in administrative costs and paid its CEO more than $2.2 million in addition to $1 million in shareholder options.
“These regulations are designed to ensure that New York taxpayers are protected and the public’s money is spent efficiently and effectively,” Governor Cuomo said. “Our providers of services in New York State are the finest in the nation. To ensure public confidence in those hard-working providers that play by the rules, these regulations will allow the state government to identify and stop the few providers that pocket taxpayer dollars rather than use them to serve the public.”
The proposed regulations cover providers that receive more than $500,000 in state support each year and receive at least 30% of their annual funding from the state.
Executive Compensation:
The proposed regulations block providers from spending more than $199,000 in state funds for the compensation of an executive. If a provider chooses to pay an executive more than $199,000 from other sources, the provider must keep compensation below the top 25 percent in the field, as determined by a compensation survey identified or recognized by the applicable state agency. Providers that pay an executive more than $199,000 must have the compensation approved by its board of directors, including at least two independent directors and must have performed a review of comparability data. In cases where competitive imperatives or the complexity of a provider’s operations require compensation that exceeds the limits and in other instances, providers may apply for a waiver.
Administrative Expenses:
The proposed regulations require that at least 75% of a provider’s operating expenses paid for with state funds are for program services rather than administrative costs. This percentage will increase by 5% each year until it reaches 85% in 2015. Capital expenses are not affected by this restriction. Waivers are available in certain circumstances.
Reporting:
The proposed regulations require providers to report annually the public funds it has received, the compensation of its executives and highest-paid employees, and its administrative expenses. Providers can file reports electronically using a simple, state-wide form, and they will not need to report to multiple agencies. This reporting requirement has been designed to avoid duplication with existing reporting requirements with which providers already must comply.
Enforcement:
The regulations proposed today include a process for providers to apply for a waiver to restrictions on executive compensation and administrative expenses. In addition, the proposed regulations provide for an administrative review process in cases where a provider appears to be out of compliance. The review process will provide extensive opportunities for providers to be heard and to correct any non-compliance over a period of at least 6 months prior to any penalties or actions being taken against them. If a violation is ultimately found and corrective action not taken by the provider, the proposed regulations include several potential actions, including redirecting the funding or imposing penalties.
Jeff Wise, President & CEO of the New York State Rehabilitation Association, said, “NYSRA views Governor Cuomo’s compensation directive as highly sound public policy. We believe the Governor has come up with an approach that strikes just the right balance: a directive that demonstrates responsible stewardship of public dollars while giving our not-for-profit community organizations, and their volunteer boards, the capacity to meet the challenges that face them. We recognize the Governor’s need to promote fiscal responsibility at every level, and we commend his efforts to pursue this in a rational and fair manner.”
Michael Stoller, Executive Director of the Human Services Council, said, “Governor Cuomo recognizes the critical role played by the nonprofit human services sector in caring for the State’s most needy and in being, itself, an economic engine for the State. We join with him to ensure public confidence in both government and service providers by taking this important step to establish clear standards for executive compensation and administrative overhead. While technical details will need further discussion during the public comment period, these standards strike the right balance in identifying ‘bad apples’ while not overburdening the vast majority of nonprofit providers who ably care for our neighbors and family members in need. We look forward to working closely with the Governor and his staff in completing these regulations and in developing the most efficient, effective, and compassionate system of care the world has ever known.”
Kenneth E. Raske, President of the Greater New York Hospital Association, said, “The Governor has an important responsibility to ensure that non-profit institutions are using public monies judiciously. GNYHA agrees and supports his efforts to ensure that best practices and strong governance oversight are used in determining executive compensation. In order to recruit and retain the talent necessary to operate our complex and world class institutions, many factors must be considered including local and national market data.”
John A. Schuppenhaur, President of the New York State Association of Regional Councils, said, “NYSARC has always strongly believed that it is accountable for public funds. The Governor’s action will help ensure the public that in these challenging times we are indeed being accountable. That can only help safeguard the public trust which has always been so critical to our mission and the people and families we serve. Further, clear guidelines will help all nonprofit boards comply with their fiduciary responsibilities.”
The proposed regulations are being released today by thirteen state agencies and will be available for public comment beginning on May 30 for 45 days before being finalized. Each of the applicable agencies will post their draft proposed regulations on their web pages this afternoon. An example of the proposed agency regulations can be found here: http://w3.health.state.ny.us/dbspace/propregs.nsf/4ac9558781006774852569… <http://w3.health.state.ny.us/dbspace/propregs.nsf/4ac9558781006774852569bd00512fda/fe1abd5a1b78ad8585257a00005afe2e?OpenDocument> [2]