AGE-22-12-00011-RP Limits on Administrative Expenses and Executive Compensation

3/13/13 N.Y. St. Reg. AGE-22-12-00011-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

OFFICE FOR THE AGING

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. AGE-22-12-00011-RP

Limits on Administrative Expenses and Executive Compensation

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following revised rule:

Proposed Action:

Addition of Part 6656 to Title 9 NYCRR.

Statutory authority:

Elder Law, section 201(3); Not-for-Profit Corporation Law, section 508 and Executive Order No. 38

Subject:

Limits on Administrative Expenses and Executive Compensation.

Purpose:

To implement guidelines regarding placing limitations on Administrative Expenses and Executive Compensation.

Substance of revised rule:

The revised rule would add a new Part 6656 entitled Limits on Administrative Expenses and Executive Compensation.

Section 6656.1 of the regulations provides the background and intent of the revised rule, which is to implement Executive Order No. 38, issued by Governor Andrew Cuomo on January 18, 2012.

Section 6656.2 sets forth the statutory authority for the promulgation of the rule by the New York State Office for the Aging (hereinafter the “Office”).

Section 6656.3 contains definitions for purposes of this Part, including definitions for administrative expenses, covered operating expenses, covered executive, covered provider, executive compensation, Office, program services, program services expenses, related organization, reporting period, State-authorized payments, and State funds. The revised regulation adds a definition of covered reporting period.

Section 6656.4 contains limits on the use of State funds or State-authorized payments for administrative expenses. The restriction will apply to subcontractors and agents of covered providers which meet the specified criteria. The restriction will apply to covered providers receiving State funds or State-authorized payments from county or local governments, rather than directly from a State agency, pursuant to specified criteria. The regulation addresses how the restriction will apply in the event that a covered provider has multiple sources of State funds or State-authorized payments. The revised regulation specifies that a cover entity provider will not be held responsible for a subcontractor’s or agent’s failure to comply with the regulations.

Section 6656.5 contains restrictions on executive compensation provided to covered executives. The restriction will apply to subcontractors and agents of covered providers which meet the specified criteria. The restriction will apply to covered providers receiving State funds or State-authorized payments from county or local governments, rather than directly from a State agency, pursuant to specified criteria. The rule addresses the application of this limit if the covered provider has multiple sources of State funds or State-authorized payments. The revised regulation specifies that a cover entity provider will not be held responsible for a subcontractor’s or agent’s failure to comply with the regulations.

Section 6656.6 enumerates the processes that have been established for covered providers to seek waivers of the limit on administrative expenses and the limits on executive compensation.

Section 6656.7 set forth the annual reporting requirements.

Section 6656.8 details the process that is established for the imposition of penalties in the event of non-compliance with the limit on administrative expenses or the limits on executive compensation.

A copy of the full text of the regulatory proposal is available on the New York State Office for the Aging’s website at www.aging.ny.gov.

Revised rule making(s) were previously published in the State Register on

October 31, 2012.

Revised rule compared with proposed rule:

Substantial revisions were made in sections 6656.3, 6656.4, 6656.5, 6656.6 and 6656.7.

Text of revised proposed rule and any required statements and analyses may be obtained from:

Stephen Syzdek, New York State Office for the Aging, Two Empire State Plaza, Albany, NY 12223, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

30 days after publication of this notice.

Revised Regulatory Impact Statement

1. Statutory Authority – Section 201(3) of the New York State Elder Law allows the Director of the New York State Office for the Aging with the advice of the advisory committee for the aging to promulgate, adopt, amend or rescind rules and regulations necessary to carry out the provisions of Article II of the Elder Law.

Section 508 of the New York State Not-For-Profit Corporation Law requires that a corporation whose lawful activities involve among other things the charging of fees or prices for its services or products shall have the right to receive such income and, in so doing, may make an incidental profit. All such incidental profits shall be applied to the maintenance, expansion or operation of the lawful activities of the corporation, and in no case shall be divided or distributed in any manner whatsoever among the members, directors, or officers of the corporation.

Governor Cuomo’s Executive Order #38 directs each state agency to promulgate regulations to address the extent and nature of administrative costs and executive compensation that providers of NYSOFA programs are reimbursed with State financial assistance or State-authorized payments for operating expenses.

2. Legislative Objectives – It is the objective of the New York State Legislature to ensure that NYSOFA administer programs and utilize program funds in the most effective and efficient manner possible for the benefit of older New Yorkers. This proposed regulation seeks to meet that legislative objective.

3. Needs and Benefits – The New York State Office for the Aging is proposing to adopt the following regulation because the State of New York directly or indirectly funds with taxpayer dollars a large number of tax exempt organizations and for-profit entities that provide critical services to New Yorkers in need and the goal is to ensure that taxpayers' dollars are used properly, efficiently, and effectively to improve the lives of New Yorkers. It is imperative that New York State and the New York State Office for the Aging ensure that state funds and state authorized funds are optimized for the purpose of providing services to those individuals who are in need of them. Applying state funds and state authorized funds primarily to providing direct care and services helps to guarantee that such funds are providing the greatest benefit to older New Yorkers. These regulations, which are required by Executive Order No. 38, will ensure that State funds or State-authorized payments paid by the New York State Office for the Aging to providers are used predominantly to provide direct care and services to older New Yorkers.

4. Costs – The costs of implementing this rule to affected providers is anticipated to be minimal since most, if not all, of the information that must be reported by such providers is already gathered or reported for other purposes. The costs to the agency of implementation are expected to be very limited as well, and efforts to ensure efficient centralization of certain aspects of such implementation are underway.

5. Paperwork – The proposed regulatory amendments will require limited additional information to be reported to the agency by providers receiving State funds or State-authorized payments. To the extent feasible, such reporting shall be made electronically to avoid unnecessary paperwork costs.

6. Local Government Mandates – The proposed rule does not impose any new program, service, duty or responsibility upon any city, county, town, village, school district or other special district.

7. Duplication – This proposed rule does not duplicate, overlap, or conflict with any State or federal statute or rule. However, the proposed rule seeks to minimize the reporting requirements faced by providers by building upon those requirements in the federal internal revenue code that require certain tax-exempt organizations to report information concerning their executive compensation and administrative costs.

8. Alternatives – Executive Order #38 and Executive Order #43 requires the adoption of this proposed regulation.

9. Federal Standards – This rule does not exceed Federal standards.

10. Compliance Schedule – The rule will become effective upon adoption. The implementation date establishing the limits on administrative expenses and executive compensation will be July 1, 2013.

Revised Regulatory Flexibility Analysis

This proposed rule will not have an adverse economic impact on small businesses or local governments nor will it impose new reporting, recordkeeping or compliance requirements on small businesses or local governments. This proposed rule is designed to address executive compensation and administrative costs of those providers of program services that receive State funding or State-authorized payments paid by the New York State Office for the Aging.

Revised Rural Area Flexibility Analysis

This proposed rule will not have an adverse economic impact on public or private entities in rural areas nor will it impose new reporting, recordkeeping or compliance requirements on public or private entities in rural areas. This proposed rule is designed to address executive compensation and administrative costs of those providers of program services that receive State fund or State-authorized payments paid by the New York State Office for the Aging.

Revised Job Impact Statement

The New York State Office for the Aging has determined that this proposed rule will not have a substantial adverse impact on jobs. This proposed rule is designed to address executive compensation and administrative costs of those providers of program services that receive State fund or State-authorized payments paid by the New York State Office for the Aging.

Assessment of Public Comment

A Notice of Revised Rule Making was published in the New York State Register on October 31, 2012. NYSOFA received several sets of comments during the public comment period associated with the revised rulemaking. The issues and concerns raised in these comments are set forth below. Issues and concerns have been grouped according to the part of the revised rule they address because they are related or for convenience in providing an efficient response. Because many commenters addressed concerns that applied to all of the participating State agencies that are implementing Executive Order No. 38, the responses to comments provided by each of those agencies are incorporated by reference into these responses. NYSOFA’s response is provided for each issue.

A number of comments objected generally to the underlying concept of the regulations, stating that the proposed regulation is overly broad in its authority and burdensome in its requirements. NYSOFA believes that the proposed limitations in the regulation further the legitimate goal of ensuring that public funds are properly expended and the use of such funds is properly monitored.

Clarification was requested concerning certain defined terms in the proposed regulation, in particular with respect to their intended scope. In response, and taking into account suggestions submitted, changes were made to the definitions of the following terms: administrative expenses, covered executive, covered provider, covered reporting period, executive compensation, program services expenses, reporting period, State-authorized payments and State funds.

Some commenters stated that the proposed limits on administrative expenses were burdensome and unnecessary, because they would interfere with existing contracts, because they were possibly duplicative of existing state and federal rules, or they will not enhance the protections already provided by restrictions from State reimbursement rates. Clarification was requested as to what will constitute administrative and program expenses. The proposed regulation has been further revised to clarify which administrative expenses are not included.

The definition of covered provider has been amended to address the individual or entity that has received State funds or State-authorized payments during the covered reporting period and the year prior to the covered reporting period. The definition of “covered provider” requires a contract or other agreement to render program services.

The regulation was not revised to alter the 75th percentile threshold because these revisions would compromise the goal of the regulation. Eliminating the executive compensation requirements would remove one of the key objectives of Executive Order No. 38: limiting the extent of such compensation paid by covered providers that rely to a significant degree upon public funds for their program and administrative services funding. These regulations provide a benchmark to ensure that State funds or State-authorized payments paid by this agency to providers are not used to support excessive compensation or unnecessary administrative costs.

Public comments tended to focus on executive compensation, stating the 75th percentile will drive salaries down as the outliers and reduce salaries in order to comply with the regulation. Implying this will depress the maximum salary permitted under the regulation. In addition, the State agencies’ authority to deny all waivers related to executive compensation calls into question the integrity and the reasonableness of the entire process of reviewing executive compensation. The goal of the proposed regulation is to ensure that taxpayer dollars are used to provide critical services to New Yorkers in need.

The effective dates of provisions in the proposed regulations have been revised to clarify: (a) covered reporting period; (b) submission of waiver applications regarding executive compensation; (c) submission of waiver applications regarding administrative expenses; and (d) reporting periods.

The full Assessment of Comments is available on the NYSOFA website at www.aging.ny.gov