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

5/29/13 N.Y. St. Reg. AGE-22-12-00011-A

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 22

May 29, 2013

RULE MAKING ACTIVITIES

OFFICE FOR THE AGING

NOTICE OF ADOPTION

 

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

Filing No. 509

Filing Date. May. 14, 2013

Effective Date. Jul. 01, 2013

Limits on Administrative Expenses and Executive Compensation

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

Action taken:

Addition of section 6656 to Title 9 NYCRR.

Statutory authority:

Elder Law, section 201(3); 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 final 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. There has been a minor change to the definition of Executive Compensation.

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. This section has been amended to provide clarification.

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.

Final rule as compared with last published rule:

Nonsubstantive changes were made in sections 6656.3(f) and 6656.5(b)(2).

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

October 31, 2012 and March 13, 2013.

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

Stephen Syzdek, New York State Office for the Aging, New York State Office for the Aging, Two Empire State Plaza, Albany, NY 12223-1251, [phone], email: [e-mail]

Regulatory Impact Statement, Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement

Although changes were made to the proposed 9 NYCRR 6656, they do not necessitate changes to the Regulatory Flexibility Statement, Regulatory Flexibility Analysis for Small Business and Local Government, Rural Area Flexibility Analysis, or Job Impact Statement.

The revisions to the last published proposed rule merely provide clarifications in the text and correct technical errors (i.e. grammatical errors) which require no change to the impact statements or rule making documents.

Initial Review of Rule

As a rule that does not require a Regulatory Flexibility Analysis, Rural Area Flexibility Analysis or Job Impact Statement, this rule will be initially reviewed in the calendar year 2018, which is no later than the fifth year after the year in which this rule is being adopted.

Assessment of Public Comment

A Notice of Revised Rule Making was published in the New York State Register on March 13, 2013. The New York State Office for the Aging (NYSOFA) received several 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 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. NYSOFA’s response is provided for each issue.

Definitions

Comment: One comment was received requesting exhaustive lists of what constitute “state funds” and “state-authorized payments”.

Response: The proposed regulations were previously modified to clarify what constitute “state funds” and “state-authorized payments”. However, additional guidance on this topic will be provided prior to the effective date.

Limits on administrative expenses

Comment: One comment was received requesting that the State engage in a dialogue with covered providers over what would constitute an adequate administrative rate.

Response: NYSOFA believes there is a legitimate government interest in limiting the amount of administrative expenses derived from government funds and that the limits set by the proposed regulations are appropriate. However, the agency will continue to monitor this issue in the years that follow. No changes were made to the proposed regulations in response to this comment.

Limits on executive compensation

Comment: One comment was received questioning the concept of limiting executive compensation for not-for-profit entities.

Response: NYSOFA believes there is a legitimate government interest in limiting the amount of executive compensation of providers that rely heavily on state funds or state authorized payments of federal funds. No changes were made to the proposed regulations in response to this comment.

Comment: One comment was received arguing that the regulations cannot be made effective on July 1, 2013 because the Division of the Budget has not yet identified, provided or recognized any surveys on executive compensation, thus preventing covered providers from determining whether waivers will be needed.

Response: Additional guidance on this topic will be provided prior to the effective date.

Comment: One comment was received arguing that covered providers may be in the position of having to attempt to recoup executive compensation funds and may not be able to do so under the Labor Law, and that if a waiver is not granted the covered provider would have no ability to recoup such funds, thus having no mechanism to avoid non-compliance with the proposed regulations.

Response: A covered provider who is faced with this dilemma may request a waiver. The waiver provisions of the regulations are intended to avoid placing covered providers into situations where compliance with competing legal requirements is impossible.

Comment: One comment was received requesting that the Division of the Budget create a list of compensation surveys that will be identified, provided and recognized by the State, and that such surveys consider executive compensation in both the not-for-profit and for-profit fields.

Response: Prior to the effective date guidance will be provided regarding acceptable surveys and comparability factors that must be taken into consideration for determining compensation and additional information regarding how this information will be identified, provided or recognized.

Waivers

Comment: One comment was received requesting clarification of the consequences of the denial of a waiver.

Response: The proposed regulations provide for penalties in the event of non-compliance by a covered provider that does not obtain a waiver, so if a covered provider fails to obtain a waiver and is thus out of compliance with the requirements, the covered provider may be subject to penalties. However, the proposed regulations addressing penalties provide for a six month period for a covered provider to cure the non-compliance, so the failure to obtain a waiver would not automatically result in the imposition of penalties. No changes have been made to the proposed regulations in response to this comment.

Effective Date

Comment: One comment was received requesting that the effective date of the proposed regulations be extended to six months after a covered provider’s first reporting period after the later of (1) the date the regulations become effective or (2) the identification, provision and recognition by the Division of the Budget and the State agencies of compensation surveys, in order to afford not-for-profit entities time to comply.

Response: Additional guidance will be provided prior to the effective date to facilitate compliance and/ or the waiver process. No change has been made to the proposed regulations in response to this comment.

Lack of Necessity

Comment: One comment was received asserting that the proposed regulations address a problem that does not really exist, other than in a few isolated circumstances, and that the proposed regulations are not needed to address those few circumstances.

Response: NYSOFA believes that the regulations will serve a necessary function by establishing appropriate controls so that taxpayer dollars are used properly, efficiently, and effectively to improve the lives of New Yorkers. No change was made to the proposed regulations in response to this comment.

Coordination

Comment: One comment was received requesting that the Governor, the Attorney General and the State agencies work together so that the regulations are implemented properly and consistently, and that the nonprofit sector be included in a taskforce to implement the regulations.

Response: The development of the proposed regulations will continue to involve interagency cooperation. No changes were made to the proposed regulations in response to this comment.