DOS-22-12-00017-RP Administrative Expenses and Executive Compensation of Providers of Services to New Yorkers

3/13/13 N.Y. St. Reg. DOS-22-12-00017-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

DEPARTMENT OF STATE

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. DOS-22-12-00017-RP

Administrative Expenses and Executive Compensation of Providers of Services to New Yorkers

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

Proposed Action:

Addition of Part 144 to Title 19 NYCRR.

Statutory authority:

Executive Law, section 91

Subject:

Administrative expenses and executive compensation of providers of services to New Yorkers.

Purpose:

To address limits on the use of State funds/State-authorized payments for administrative expenses and executive compensation.

Substance of revised rule:

The revised rule would add a new Part 144 to 19 NYCRR titled Limits on Administrative Expenses and Executive Compensation.

Section 144.1 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 144.2 sets forth the Legal Basis for the promulgation of the rule by the Department of State (hereinafter the “Department”).

Section 144.3 contains Definitions for purposes of this Part, including definitions for administrative expenses, covered executive, covered operating expenses, covered provider, covered reporting period, department, executive compensation, program services, program services expenses, related organization, reporting period, state-authorized payments, and state funds.

Section 144.4, titled 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, as well as to those receiving such funds 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. The effective date for this section shall commence no earlier than July 1, 2013.

Section 144.5, titled 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, as well as to those receiving such funds 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. The effective date for this section shall commence no earlier than July 1, 2013.

Section 144.6, titled Waivers, establishes processes for covered providers to seek waivers of the limit on administrative expenses and the limits on executive compensation.

Section 144.7 pertains to Reporting by covered providers. Covered providers are required to report information on an annual basis.

Section 144.8 discusses Penalties. A process 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.

Section 144.9, titled Severability, declares that if any provision in this Part is deemed invalid, such invalidity shall not affect other provisions of this Part that can be given effect without the invalid portions.

A copy of the full text of the revised regulatory proposal is available on the DOS website at: http://www.dos.ny.gov/info/regulatory_activity/index.html.

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 144.2, 144.3, 144.4, 144.5 and 144.6.

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

David Treacy, Department of State, One Commerce Plaza, Albany, NY 12231, [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 Law, § 91; Executive Order No. 38; Executive Order No. 43; Not- For-Profit Corporation Law, § 508.

Legislative Objectives: Executive Law, § 91 authorizes the Secretary of State to promulgate rules to regulate and control the exercise of the powers of the Department of State and the performance of the duties of officers, agents and other employees thereof. Not- For-Profit Corporation Law, § 508 provides 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 doing so, 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.

Needs and Benefits: The Secretary of State is proposing to adopt the following revised 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. In certain instances, providers of services that receive State funds or State-authorized payments have used such funds to pay for excessive administrative expenses 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. Abuses involving such public funds harm both the people of New York, who are paying for the services, and those who must depend on such services being available and well-funded. This regulation, which is required by Executive Orders 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 expenses.

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 agency cost 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: The revised regulation does not anticipate any additional mandates.

Paperwork/Reporting Requirements: The revised regulation 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 in order to avoid unnecessary paperwork costs.

Duplication: This revised rule does not duplicate, overlap, or conflict with any State or federal statute or rule. The regulation 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 expenses.

Alternatives: The alternative of not proposing this regulation was considered, but Executive Order No. 38 requires it promulgation.

Federal Standards: This revised rule does not conflict with federal standards.

Compliance Schedule: The rule will become effective upon adoption. The implementation date establishing the limits on administrative expenses and executive compensation shall be no earlier than July 1, 2013.

Revised Regulatory Flexibility Analysis

A Revised Regulatory Flexibility Analysis for Small Businesses and Local Governments is not required with this revised rulemaking notice because changes made to the last published rule would neither impose any adverse economic impact on small businesses nor impose new reporting, record keeping or other compliance requirements on small businesses or local governments. The revised regulation is designed to address executive compensation and administrative expenses of program-service providers that receive State funds or State-authorized payments paid by the Department of State.

Revised Rural Area Flexibility Analysis

A Revised Rural Area Flexibility Analysis is not required with this revised rulemaking notice because changes made to the last published rule would neither impose any adverse economic impact on rural areas nor impose new reporting, record keeping or other compliance requirements on public or private entities in rural areas. The revised regulation is designed to address executive compensation and administrative expenses of program-service providers that receive State funds or State-authorized payments paid by the Department of State.

Revised Job Impact Statement

A Revised Job Impact Statement is not required with this revised rulemaking notice; it is evident from the subject matter of the revised regulation, including changes made to the last published rule, that it would have no impact on jobs and employment opportunities. The revised regulation is designed to address executive compensation and administrative expenses of program-service providers that receive State funds or State-authorized payments paid by the Department of State.

Assessment of Public Comment

A Notice of Revised Rule Making was published in the New York State Register on October 31, 2012. The Department of State 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. The Department of State 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 Department of State 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 would not enhance the protections already provided by restrictions from State reimbursement rates. Clarification was requested as to what would 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 down 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 effective dates of the limitations on administrative expenses and the limitations on executive compensation were amended from commencing on April 1, 2013 to commencing on or after July 1, 2013.

The full Assessment of Public Comments is available on the Department of State website at http://www.dos.ny.gov/info/regulatory_activity/index.html.