OVS-22-12-00009-RP Limits on Administrative Expenses and Executive Compensation

3/13/13 N.Y. St. Reg. OVS-22-12-00009-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

OFFICE OF VICTIM SERVICES

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. OVS-22-12-00009-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:

Amendment of section 525.22 and addition of section 525.24 to Title 9 NYCRR.

Statutory authority:

Executive Law, subdivision 3, section 623; Not-For-Profit Corporation Law, section 508; and Executive Order No. 38

Subject:

Limits on administrative expenses and executive compensation.

Purpose:

To establish limitations on administrative expenses and executive compensation for those programs funded by the Office.

Substance of revised rule:

The revised, proposed regulations amend section 525.22 of Title 9 NYCRR and adds a new section 525.24 to Title 9 NYCRR, related to Victim Assistance Programs and Limits on Administrative Costs and Executive Compensation, respectively.

Section 525.22 is amended to state that Victim Assistance Programs receiving state funds or state-authorized payments from the Office of Victim Services (OVS or Office) pursuant to the terms of a contract or memorandum of understanding shall comply with all applicable federal and state laws and regulations and any applicable contractual or memorandum of understanding language entered into with the office. Applicable state regulations shall include, but not be limited to this section and the newly added section 525.24 of this part.

Section 525.24, subdivision (a) provides for 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.

Subdivision (b) contains definitions for purposes of this section, including definitions for administrative expenses, covered operating expenses, related organization, covered executive, covered provider, executive compensation, office, program services, program services expenses, reporting period, state-authorized payments, and state funds.

Subdivision (c) relates to limits on administrative expenses. This subdivision 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.

Subdivision (d) relates to limits on executive compensation. This subdivision 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.

Subdivision (e) relates to waivers for the limit on executive compensation and the processes are established for covered providers to seek such waivers.

Subdivision (f) relates to waivers for the limit on reimbursement for administrative expenses and the processes are established for covered providers to seek such waivers.

Subdivision (g) relates to denials of waiver requests, notice to the impacted parties and the Office’s reconsideration of the waiver requests.

Subdivision (h) relates to the reporting by covered providers. Covered providers are required to report information on an annual basis.

Subdivision (i) establishes a process 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 this regulatory proposal is available on the Office of Victim Services website: http://www.ovs.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 section 525.24.

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

John Watson, General Counsel, Office of Victim Services, A.E. Smith State Office Building, 80 South Swan St., 2nd Fl, Albany, New York 12210-8002, [phone], e-mail: [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: Subdivision 3 of section 623 of the Executive Law provides that the Office of Victim Services (OVS or Office) shall have the power and duty to adopt, promulgate, amend and rescind suitable rules and regulations to carry out the provisions and purposes of Article 22 of the Executive Law. Section 508 of the Not-For-Profit Corporation Law 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 so doing, may make an incidental profit. All such incidental profits, however, 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. Other authorities for enacting these rules include Executive Order No. 38, enacted January 18, 2012.

2. Legislative objectives: Pursuant to Executive Order No. 38, enacted January 18, 2012, the OVS recognizes its fiduciary duties related to any State funds or State-authorized payments made by the Office via competitive grants for the provision of services to victims of crimes and others impacted by such victimization. This section is meant to establish the minimum expectations and requirements pursuant to Executive Order No. 38.

3. Needs and benefits: The OVS is proposing to adopt the following regulation because the State of New York directly or indirectly funds with State and federal monies 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 such funds 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 Executive Order No. 38, will ensure that State funds or State-authorized payments paid by the Office to providers are not used to support excessive compensation or unnecessary administrative costs.

4. Costs: a. Costs to regulated parties. 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 OVS of such implementation are expected to be very limited as well, and efforts to ensure efficient centralization of certain aspects of such implementation are underway.

b. Costs to local governments. These proposed regulations do not apply to local governments and would not impose any additional costs on local governments.

c. Costs to private regulated parties. The proposed regulations would impose minimal any additional costs on private regulated parties.

5. Local government mandates: These proposed regulations do not impose any program, service duty or responsibility upon any local government.

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

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 No. 38 requires the adoption of this proposed regulation.

9. Federal standards: These amendments do not conflict with federal standards.

10. 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, Rural Area Flexibility Analysis and Job Impact Statement

The Office of Victim Services has determined that changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of a Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement.

Assessment of Public Comment

A Notice of Revised Rule Making was published in the New York State Register on October 31, 2012.

The Office of Victim Services (OVS or Office) 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 of those who submitted comments 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 OVS 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 OVS 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 of those who submitted comments 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 because 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. This implied the maximum salary permitted under the regulation would be depressed. 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 OVS website at http://www.ovs.ny.gov.