Limits on administrative expenses and executive compensation.
Purpose:
To address limits on the use of State funds/State-authorized payments for administrative expenses and executive compensation.
Substance of final rule:
The rule adds 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. A minor change has been made to the last proposed text of the rule; clarification to the definition of “executive compensation” has been made in the adopted text.
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. A minor change has been made to the last proposed text of the rule; a second parenthetical has been added to section 144.5(b)(2) to clarify language of the provision.
Section 144.6, titled Waivers, establishes processes for covered providers to seek waivers of the limits 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
Final rule as compared with last published rule:
Nonsubstantive changes were made in sections 144.3(g) and 144.5(b)(2).
Revised rule making(s) were previously published in the State Register on
March 13, 2013 and October 31, 2012.
Text of rule and any required statements and analyses may be obtained from:
David Treacy, Department of State, One Commerce Plaza, Albany, NY 12231, (518) 474-6740, email: David.Treacy@dos.ny.gov
Revised Regulatory Impact Statement
Changes made to the last published rule do not necessitate revision to the previously published Regulatory Impact Statement (“RIS”) for the addition of Part 144 to Title 19 NYCRR. The revisions to the last published rule merely provide clarifications in the text and correct technical errors (i.e., grammar), which requires no change to the RIS.
Revised Regulatory Flexibility Analysis
Changes made to the last published rule do not necessitate revision to the previously published Regulatory Flexibility Analysis for Small Businesses and Local Governments (“RFASBLG”) for the addition of Part 144 to Title 19 NYCRR. The revisions to the last published rule merely provide clarifications in the text and correct technical errors (i.e., grammar), which requires no change to the RFASBLG.
Revised Rural Area Flexibility Analysis
Changes made to the last published rule do not necessitate revision to the previously published Rural Area Flexibility Analysis (“RAFA”) for the addition of Part 144 to Title 19 NYCRR. The revisions to the last published rule merely provide clarifications in the text and correct technical errors (i.e., grammar), which requires no change to the RAFA.
Revised Job Impact Statement
Changes made to the last published rule do not necessitate revision to the previously published Job Impact Statement (“JIS”) for the addition of Part 144 to Title 19 NYCRR. The revisions to the last published rule merely provide clarifications in the text and correct technical errors (i.e., grammar), which requires no change to the JIS.
Initial Review of Rule
As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2016, which is no later than the 3rd 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 Department of State 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. The Department of State’s response is provided for each issue.
Definitions
Comment: One comment was received requesting exhaustive lists of what constitutes “state funds” and “state-authorized payments”.
Response: The proposed regulations were previously modified to clarify what constitutes “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: The Department of State 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: The Department of State 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: The Department of State 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.
