Home » 2013 Issues » May 29, 2013 » PDD-22-12-00020-A Limits on Administrative Expenses and Executive Compensation
PDD-22-12-00020-A Limits on Administrative Expenses and Executive Compensation
5/29/13 N.Y. St. Reg. PDD-22-12-00020-A
NEW YORK STATE REGISTER
VOLUME XXXV, ISSUE 22
May 29, 2013
RULE MAKING ACTIVITIES
OFFICE FOR PEOPLE WITH DEVELOPMENTAL DISABILITIES
NOTICE OF ADOPTION
I.D No. PDD-22-12-00020-A
Filing No. 512
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 Part 645 to 14 NYCRR.
Statutory authority:
Mental Hygiene Law, sections 13.09(b) and 43.02; and Not-for-Profit Corporation Law, section 508
Subject:
Limits on administrative expenses and executive compensation.
Purpose:
To curb abuses in executive compensation and administrative expenses and ensure that taxpayer dollars are used to help persons in need.
Substance of final rule:
The final regulations add a new Part 645 to 14 NYCRR, titled Limits on Administrative Expenses and Executive Compensation.
Section 645.1 contains definitions for purposes of this Part, including definitions for administrative expenses, covered operating expenses, covered executive, covered provider, covered reporting period, executive compensation, program services, program services expenses, related organization, reporting period, State-authorized payments, and State funds.
There has been a minor change to the proposed regulation as follows: a clarification has been made to the definition of Executive Compensation.
Section 645.2. Limits on Administrative Expenses. Contains limits on the use of State funds or State-authorized payments for administrative expenses.
The restriction applies to subcontractors and agents of covered providers which meet the specified criteria.
The restriction applies 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 final 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 645.3. Limits on Executive Compensation. Contains restrictions on executive compensation provided to covered executives.
The restriction applies to subcontractors and agents of covered providers which meet the specified criteria.
The restriction applies 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 final rule addresses the application of this limit if the covered provider has multiple sources of State funds or State-authorized payments.
Section 645.4. Waivers. Processes are established for covered providers to seek waivers of the limit on administrative expenses and the limits on executive compensation.
Section 645.5. Reporting.
Covered providers are required to report information on an annual basis.
Section 645.6. 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 final regulations is available on the OPWDD website at www.opwdd.ny.gov.
Final rule as compared with last published rule:
Nonsubstantive changes were made in sections 645.1(f) and 645.3(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:
Barbara Brundage, Director, Regulatory Affairs Unit, Office for People With Developmental Disabilities, 44 Holland Ave., Albany, NY 12229, (518) 474-1830, email: Barbara.Brundage@opwdd.ny.gov
Additional matter required by statute:
Pursuant to the requirements of the State Environmental Quality Review Act, OPWDD, as lead agency, has determined that the action described herein will have no effect on the environment, and an E.I.S. is not needed.
Revised Regulatory Impact Statement, Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement
The revisions to the last published rule merely clarify the text and correct technical errors (i.e., grammar).
These changes do not necessitate revisions to the previously published Regulatory Impact Statement, Regulatory Flexibility Analysis for Small Business and Local Governments, Rural Area Flexibility Analysis, or Job Impact Statement.
Assessment of Public Comment
A Notice of Revised Rule Making was published in the New York State Register on March 13, 2013. The Office for People with Developmental Disabilities (OPWDD) 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. OPWDD’s response is provided for each issue.
Comment: If property rental and maintenance is neither program nor administrative expense for purposes of regulation, and the provider can’t pay for this out of its own resources, does OPWDD expect the provider to go out of business?
Response: The regulations only exclude property rental and maintenance from the calculation of the administrative expense cap. They do not prevent these costs from being funded. These costs will continue to be funded pursuant to existing formula and rules in other regulations, contracts or other policy documents.
Comment: There should be no waivers to the limits on administrative expenses.
Response: OPWDD believes it is important to retain the waivers to address instances when a provider has necessary and unavoidable administrative expenses that exceed the cap.
Comment: The regulations should be amended to make covered providers’ records subject to the freedom of information law and meetings subject to the open meetings law. This will ensure public scrutiny and ensure that taxpayer monies are used for their intended purposes and that the provider adheres to all laws, rules and regulations.
Response: The open meetings law and freedom of information law can only be modified through statutory change.
Comment: We support the limits on administrative expenses and hope this will lead to better pay for direct care workers. We also support the executive compensation limits and think that this will ensure that State money is spent for direct care and will improve quality of care. We commend OPWDD for revisions clarifying that certain program related costs (such as IT, legal, public outreach and quality assurance) will not be administrative expenditures under the regulations, that certain staff who perform mainly programmatic roles are exempt from the compensation limits, for changes easing the waiver requirements, and excluding State Education Department funds from the definition of “State authorized payments and State funds.”
Response: OWPDD appreciates the support.
Comment: OPWDD should use the IRS guidelines to measure reasonableness of executive compensation.
Response: OPWDD is aware that there are differences between the IRS rules and the revised regulations. While OPWDD has tailored these regulations to the IRS rules where appropriate, certain important differences remain to provide additional and more effective restrictions on the use of funds for excessive compensation.
Comment: The definition of executive compensation will include longevity payments, pension benefits (including accrued but unrealized investment returns on contributions) and deferred compensation. Highly compensated employees of tax exempt providers have the same need for adequate retirement income as employees of for profit companies. Non profits have established 457 plans to allow executives to reach reasonable retirement income goals. The regulations will prohibit contributions to supplemental executive retirement 457 plans, and will reduce the contributions an executive can make to an amount or percentage lower than some of their employees. Tax exempt organizations are at a disadvantage competing for executive talent because they cannot offer stock or other equity compensation to key employees. The executive compensation cap becomes a hard cap for covered entities such as OPWDD providers that rely almost exclusively on state funding. Other organizations that do not primarily provide services to persons with public health insurance can pay executives more than the cap. This puts OPWDD providers at a disadvantage in recruiting and retaining executives.
Response: For-profit companies are not excluded from the regulations. If a for-profit company meets the definition of covered provider, the regulation will apply to it. One of the key goals of the regulation is to limit the extent of executive compensation paid by providers that rely to a significant degree upon taxpayer dollars and to ensure that taxpayer dollars are used properly, efficiently and effectively to improve the lives of New Yorkers. Also, if a provider’s governing board reviews and approves the executive compensation, and the compensation is at or less that the 75th percentile of compensation for comparable executives, the provider will be in compliance with the regulation. If the provider cannot meet these limits, it can receive a waiver from the limits if it demonstrates good cause supporting the waiver.
Comment: The definition of executive compensation is too broad and the cap on executive compensation is arbitrary. The state will be micromanaging executive compensation and this will be cumbersome, costly and ineffective.
Response: OPWDD disagrees. It is necessary to broadly define executive compensation to prevent taxpayer dollars from being used for excessive executive compensation packages and to ensure that taxpayer dollars are used properly, efficiently and effectively to improve the lives of New Yorkers. The cap on executive compensation is reasonable. OPWDD and the other agencies implementing EO 38 are working hard to ensure compliance and implementation will not be burdensome for providers or the State.
Comment: Waivers will be based on compensation for executives of providers of the same size, same program service sector and same or comparable geographic area. This does not recognize providers that are seeking entrepreneurial leaders from the private sector or different regions of the State or country.
Response: Any organization competes for talent against other organizations of the same size, in the same sector of the economy and in the same or comparable geographic areas. In fact, many of the compensation tools available to providers take into account fully the extent which providers draw their executives from other sectors in some instances. Accordingly, these regulations will not preclude such competition.
Comment: The regulations single out, without any rational basis, only some of the State contractors and their employees who provide services and supports to persons with developmental disabilities. The regulations exclude State, county and local governmental units, professionals, partnerships, S corporations and other entities or persons providing products. Many public employees earn over $199,000 per year, and the value of public pensions for public employees is considerable. This is discrimination.
Response: The regulations have been developed to implement Executive Order No. 38, which addresses State funding to render program services. EO 38 does not address salaries of State employees and such employees are not similarly situated for the purposes of the goals of these regulations.
Comment: There is no authority for OWPDD to adopt the regulations or for the governor to promulgate EO 38, especially since the legislature did not adopt limits proposed in the Governor’s executive budget.
Response: The regulations are within OPWDD’s authority. Also, the Legislature did not reject the proposal made in Executive Order 38. Rather, the Governor’s Office chose to proceed by regulation in part to ensure that the rules developed in this area could be monitored and revised as necessary over time.
Comment: The cost of expensed equipment, repairs and maintenance and utilities will not be factored into the administrative expense limit calculation. However, these costs are included in program services expenses and administrative expenses when calculating the ratio value factor. Therefore, depending on the disparity of these costs within program services and administrative expenses, this could have a significant effect of the calculation of the limit. The regulations should specify how these expenses will be allocated in determining administrative limits and the allocation should be on a proportionate basis.
Response: OPWDD does not feel that the definition of administrative expenses, for the purpose of the administrative limit calculation, will have negative implications for providers.
Comment: The administrative caps fail to recognize the differences between small agencies, with revenue of less than $15 million and large agencies with revenue of over $30M. The cap does not take into account economies of scale and punishes small providers.
Response: OPWDD believes that small and large agencies will be able to remain within the cap percentage.
Comment: By suppressing overhead, the cap will cause higher turnover, poorer leadership and worse service.
Response: OPWDD believes the cap will allow for adequate funding of the administrative operations of a provider and will not lead to deterioration in the quality of administration, leadership or services. Also, non-recurring or unanticipated administrative expenses over $10,000 are not considered administrative expenses or program expenses under the regulation.
Comment: The administrative costs of HUD corporations should be excluded. Some providers also have HUD corporations, which are not state funded. A HUD corporation incurs primarily capital expenses and has a high portion of administrative expenses.
Response: If a HUD corporation is a separate corporation and does not meet the definition of covered provider, it will not be covered by these regulations.
Comment: The regulation should clarify whether utility expenses are administrative expenses or program services expenses.
Response: Utility expenses incurred in delivering program services are program services expenses. Utility expenses incurred in administration are administrative expenses. Covered providers may allocate such expenses accordingly.
Comment: The costs of fundraising should be program services costs and not administrative costs.
Response: For all providers who report on a Consolidated Fiscal Report, fundraising costs are not reportable as allowable costs. Therefore, fundraising costs are not recognized as either program or administrative costs.
Comment: The regulation should define “corporate family” as used in subparagraph 645.1(d)(3)(v).
Response: This term may be further defined in guidance documents released prior to the effective date.
Comment: The regulation should clarify whether compensation of part time employees and employees who do not work for a full reporting period will be annualized.
Response: Such compensation will not be annualized.
Comment: The regulation should clarify whether reporting period means the period for the Consolidated Fiscal Report, the AHCF-1, Standard of Payment or any other State cost report.
Response: The reporting period is the reporting period for the consolidated fiscal report.
Comment: The effective date of the regulation should be January 1 or April 1, 2014. The regulations are complex and there is no information about reporting forms, the waiver process or the compensation survey.
Response: Timeframes were modified in previous versions and remain unchanged in the adopted text.
