CJS-22-12-00016-RP Limits on Administrative Expenses and Executive Compensation

3/13/13 N.Y. St. Reg. CJS-22-12-00016-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

DIVISION OF CRIMINAL JUSTICE SERVICES

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. CJS-22-12-00016-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 6157 to Title 9 NYCRR.

Statutory authority:

Executive Order No. 38; Executive Law, section 837(13); and Not-For-Profit Corporation Law, section 508

Subject:

Limits on Administrative Expenses and Executive Compensation.

Purpose:

To implement Executive Order No. 38 issued by Governor Andrew Cuomo on January 18, 2012.

Substance of revised rule:

The revised rule would add a new Part 6157 to 9 NYCRR entitled Limits on Administrative Expenses and Executive Compensation.

Section 6157.1 - Background and Intent. 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 6157.2 - Definitions. Contains definitions for purposes of this Part, including definitions for administrative expenses, commissioner, covered executive, covered operating expenses, covered provider, covered reporting period, division, executive compensation, program services, program services expenses, related organization, reporting period, State-authorized payments, and State funds.

Section 6157.3 - Limits on Administrative Expenses. 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 revised regulation addresses how the restriction will apply in the event that a covered provider has multiple sources of State funds or State-authorized payments.

Section 6157.4 - Limits on Executive Compensation. 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 revised rule addresses the application of this limit if the covered provider has multiple sources of State funds or State-authorized payments.

Section 6157.5 - Waivers. Processes are established for covered providers to seek waivers of the limits on administrative expenses and the limits on executive compensation.

Section 6157.6 - Reporting. Covered providers are required to report information on an annual basis.

Section 6157.7 - Penalties. A process is established for the imposition of penalties in the event of non-compliance with the limits on administrative expenses or the limits on executive compensation.

A copy of the full text of the regulatory proposal is available on the Division of Criminal Justice Services website at http://www.criminaljustice.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 6157.2, 6157.3, 6157.4, 6157.5(a), (b) and 6157.6(a).

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

Natasha M. Harvin, Esq., Division of Criminal Justice Services, Alfred E. Smith Office Building, South Swan Street, Albany, New York 12210, [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

Statutory Authority:

Executive Order (E.O.) No. 38; Executive Law § 837(13); Not-For-Profit Corporation Law § 508. Executive Law § 837(13) authorizes the Division of Criminal Justice Services to adopt, amend or rescind regulations “as may be necessary or convenient to the performance of the functions, powers and duties of the [D]ivision.” Not-For-Profit Corporation Law § 508 pertains to income from corporate activities and provides, “[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.”

Legislative Objectives:

E.O. No. 38, which was issued by Governor Andrew Cuomo on January 18, 2012, provides for a limit on administrative expenses and executive compensation of providers of program services in order to meet the State’s ongoing obligation to ensure the proper use of taxpayer dollars and the most effective provision of such services to the public. The purpose of these regulations is to implement E.O. No. 38 by exercising the authority of the Commissioner of the Division of Criminal Justice Services to issue regulations governing the use of State funds and State-authorized payments in connection with providing program services to members of the public.

Needs and Benefits:

The Division of Criminal Justice Services 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 taxpayer dollars are used properly, efficiently and effectively to improve the lives of New Yorkers. In certain instances, providers of services that receive State funds or State-authorized payments have used such funds to pay for excessive administrative costs or inflated compensation for their senior executives, rather than devoting a greater proportion of such funds to providing direct care or services to their clients. Such abuses involving public funds harm both the people of New York who are paying for such services, and those persons who must depend upon such services to be available and well-funded. These regulations, which are required by E.O. No. 38, will 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.

Costs:

The costs of implementing this rule to affected providers is anticipated to be minimal as 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 such implementation is expected to be very limited as well, and efforts to ensure efficient centralization of certain aspects of such implementation are underway.

Local Government Mandates:

None. The Commissioner or his or her designee, rather than the county or local unit of government, shall be responsible for obtaining the necessary reporting from and compliance by such covered providers, and shall issue guidance to affected county and local governments to set forth the procedures by which the Commissioner or his or her designee shall do so.

Paperwork/Reporting Requirements:

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.

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.

Alternatives:

E.O. No. 38 requires the adoption of this proposed regulation.

Federal Standards:

These amendments do not conflict with federal standards.

Compliance Schedule:

This rule will become effective when adopted and the Notice of Adoption is published in the State Register. The implementation date establishing the limits on administrative expenses and executive compensation will be July 1, 2013.

Revised Regulatory Flexibility Analysis

A revised Regulatory Flexibility Analysis for Small Businesses and Local Governments is not being submitted with this notice because the changes will not impose any adverse economic impact on small businesses, nor will the changes impose new reporting, record keeping or other compliance requirements on small businesses or local governments.

The proposed regulatory amendments are designed to address executive compensation and administrative costs of those providers of program services that receive State funds or State-authorized payments paid by the Division of Criminal Justice Services.

Revised Rural Area Flexibility Analysis

A revised Rural Area Flexibility Analysis is not being submitted with this notice because the changes will not impose any adverse economic impact on rural areas or reporting, record keeping or other compliance requirements on public or private entities in rural areas.

The proposed regulatory amendments are designed to address executive compensation and administrative costs of those providers of program services that receive State funds or State-authorized payments paid by the Division of Criminal Justice Services.

Revised Job Impact Statement

A revised Job Impact Statement is not being submitted with this notice because it is evident from the subject matter of the regulation that it will have no impact on jobs and employment opportunities.

Assessment of Public Comment

A Notice of Revised Rule Making was published in the New York State Register on October 31, 2012. The Division of Criminal Justice Services (Division) received several sets of comments during the public comment period associated with the revised rule-making. 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. The Division’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. The Division 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 proposed 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 Division’s website at http://www.criminaljustice.ny.gov/.