TDA-22-12-00021-RP Limits on Administrative Expenses and Executive Compensation

3/13/13 N.Y. St. Reg. TDA-22-12-00021-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

OFFICE OF TEMPORARY AND DISABILITY ASSISTANCE

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. TDA-22-12-00021-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 315 to Title 18 NYCRR.

Statutory authority:

Social Services Law, section 20(3)(d) and Not-For-Profit Corporation Law, section 508

Subject:

Limits on administrative expenses and executive compensation.

Purpose:

Established limits on the use of State funds or State-authorized payments for administrative expenses and executive compensation by covered providers.

Substance of revised rule:

The revised rule would add a new Part 315 to 18 NYCRR titled Limits on Administrative Expenses and Executive Compensation.

Section 315.1 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 315.2 Sets forth the statutory authority for the promulgation of the rule by the Office of Temporary and Disability Assistance (hereinafter the “Office”).

Section 315.3 Contains definitions for purposes of this Part, including definitions for administrative expenses, covered executive, covered operating expenses, covered provider, covered reporting period, executive compensation, Office, program services, program services expenses, related organization, reporting period, State-authorized payments, and State funds.

Section 315.4 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 315.5 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 315.6 Waivers. Processes are established for covered providers to seek waivers of the limit on administrative expenses and the limit on executive compensation.

Section 315.7 Reporting by Covered Providers. Covered providers are required to report information on an annual basis.

Section 315.8 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.

A copy of the full text of the regulatory proposal is available on the Office of Temporary and Disability Assistance’s website at www.otda.ny.gov/legal

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 315.2, 315.3, 315.4, 315.5, 315.6 and 315.7.

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

Jeanine S. Behuniak, New York State Office of Temporary and Disability Assistance, 40 North Pearl Street, 16C, Albany, New York 12243-0001, [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:

Social Services Law (SSL) § 20(3)(d) authorizes the Office of Temporary and Disability Assistance (hereinafter “agency”) to promulgate regulations to carry out its powers and duties.

Not-For-Profit Corporation Law (N-PCL) § 508 provides that a corporation, as defined in N-PCL § 102(a)(5), may make an incidental profit. All such incidental profits are to be applied to the maintenance, the expansion or the operation of the lawful activities of the corporation, and shall not be divided or distributed in any manner whatsoever among the members, the directors or the officers of the corporation.

2. Legislative objectives:

It was the intent of the Legislature in enacting SSL § 20(3)(d) that the agency establish rules, regulations and policies to carry out its powers and duties, and it was the intent of Governor Andrew Cuomo in signing Executive Orders No. 38 and No. 43 that this agency promulgate regulations to establish limits on the use of State funds or State-authorized payments for administrative costs and executive compensation by covered providers.

3. Needs and benefits:

This agency is proposing to adopt the regulations 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 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, are intended to prevent providers from using State funds or State-authorized payments paid by this agency to support excessive compensation or unnecessary administrative costs.

4. Costs:

The costs of implementing this rule to affected providers are 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 this agency of such implementation are expected to be mitigated by efforts that are underway to ensure efficient centralization of certain aspects of such implementation.

5. Local government mandates:

The social services districts will be required to provide minimal information to the agency concerning service providers with which the social services districts have contractual relationships. The administrative functions required by the proposed regulations will be carried out by the agency.

6. Paperwork:

The proposed regulatory amendments will require limited additional information to be reported to the agency by covered 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 covered 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 Orders No. 38 and No. 43 require the adoption of this proposed rule.

9. Federal standards:

This proposed rule does not conflict with 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, Rural Area Flexibility Analysis and Job Impact Statement

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

Summary of 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 Temporary and Disability Assistance (OTDA) received several sets of comments during the public comment period associated with the revised rulemaking. The issues and concerns raised in these comments are summarized by OTDA below. The 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.

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. OTDA 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 reduce salaries in order to comply with the regulation. Implying this will depress the maximum salary permitted under the regulation. In addition, a comment stated that 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 OTDA website at www.otda.ny.gov/legal