Source: http://www.dos.ny.gov/info/regulatory_activity/proposed/part144.html
Timestamp: 2013-05-23 03:41:07
Document Index: 259963757

Matched Legal Cases: ['art 144', 'art 144', '§ 91', '§ 508', 'art 144', '§ 144', '§ 144', '§ 207', '§ 144', '§144', '§ 144', '§ 144', '§ 144', '§ 144']

Rule Making FAQ Limits on Administrative Expenses and Executive Compensation
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19 NYCRR Part 144
NYCRR TITLE 19
Chapter III	Administration
Subchapter E	Limits on Administrative Expenses and Executive Compensation
Part 144	Limits on Administrative Expenses and Executive Compensation (Statutory Authority: Executive Law, § 91; Not-For-Profit Corporation Law, § 508)
144.1	Background and intent.
144.2	Legal basis.
144.3	Definitions.
144.4	Limits on administrative expenses.
144.5	Limits on executive compensation.
144.6	Waivers.
144.7	Reporting.
144.8	Penalties
144.9 Severability
The purpose of this Part is to implement Executive Order No. 38, issued by Governor Andrew Cuomo on January 18, 2012, by exercising the authority of the Secretary of State to issue regulations governing the use of State funds and State-authorized payments in connection with providing program services to members of the public. Executive Order No. 38 provides for a limit on administrative expenses and executive compensation of providers of program services in order to meet the State’s ongoing obligation to ensure the proper use of taxpayer dollars and the most effective provision of such services to the public.
(a) Section 91 of the Executive Law authorizes the Secretary of State to promulgate this Part subject to and in conformity with the provisions of the constitution and laws of the state.
(b) 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 doing so, may make an incidental profit. All such incidental profits 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. 144.3 Definitions.
(a) Administrative expenses are those expenses authorized and allowable pursuant to applicable agency regulations, contracts or other rules that govern reimbursement with State funds or State-authorized payments that are incurred in connection with the covered provider’s overall management and necessary overhead that cannot be attributed directly to the provision of program services.
(1) Such expenses include but are not limited to the following expenses, if otherwise authorized and allowable pursuant to applicable agency regulations, contracts or other rules that govern reimbursement with State funds or State-authorized payments::
(iii) taxes, payments in lieu of taxes, or assessments paid to any unit of government;
(b) Covered executive is a compensated director, trustee, managing partner, or officer whose salary and/or benefits, in whole or in part, are administrative expenses, and any key employee whose salary and/or benefits, in whole or in part, are administrative expenses and whose executive compensation during the reporting period exceeded $199,000. For the purposes of this definition, the terms “director,” “trustee,” “officer,” and “key employee” shall have the same meaning as such terms in the Internal Revenue Service’s instructions accompanying Form 990, Part VII. If the number of key employees employed by the covered provider who meet this definition exceeds ten, then the covered provider shall report only those ten key employees whose executive compensation is the greatest during the reporting period and no other key employees shall be considered covered executives. Clinical and program personnel in a hospital or other entity providing program services, including chairs of departments, heads of service, chief medical officers, directors of nursing, or similar types of personnel fulfilling administrative functions that are nevertheless directly attributable to and comprise program services shall not be considered covered executives for purposes of limiting the use of State funds or State-authorized payments to compensate them. In the event that a covered provider pays a related organization to perform administrative or program services, the covered executives of the related organization shall also be considered “covered executives” of the covered provider for purposes of reporting and compliance with these regulations if more than thirty percent of such a covered executive’s compensation is derived from State funds or State-authorized payments received from the covered provider. In such a circumstance, the related organization shall not be subject to the limitations on the use of State funds or State-authorized payments for administrative expenses in section 144.4 of this regulation solely as a result of having covered executives. (c) Covered operating expenses shall mean the sum of program services expenses and administrative expenses of a covered provider as defined in subdivision (d) of this section.
(d) Covered provider.
(1) A covered provider is an entity or individual that:
(i) has received pursuant to contract or other agreement with the Department or with another governmental entity, including county and local governments, or an entity contracting on its behalf, to render program services, State funds or State-authorized payments during the covered reporting period and the year prior to the covered reporting period, and in an average annual amount greater than $500,000 during those two years; and
(ii) at least thirty (30) percent of whose total annual in-state revenues for the covered reporting period and for the year prior to the covered reporting period were from State funds or State-authorized payments. This percentage shall be calculated as a percentage of the total annual revenues derived from and in connection with the provider’s activities within New York State, irrespective of whether the provider derives additional revenues from activities in another state. The source of such revenues shall include those from sources outside New York State if such revenues were derived from or in connection with activities inside New York State, including, for example, contributions by out-of-state individuals or entities for in-state activities. Where applicable, a provider’s method of calculating in-state revenues for purposes of determining tax liability or in connection with completion of its financial statements shall be deemed acceptable by the Department for the purpose of applying this paragraph.
For purposes of this Part, the method of accounting used by the entity or individual in the preparation of its annual financial statements shall be used, except that an entity or individual that otherwise reports to the Department using a different method of accounting shall use such method in determining whether such entity or individual is a covered provider. (2) The following providers shall not be considered covered providers:
(i) State, county, and local governmental units in New York State, and tribal governments for the nine New York State recognized nations, and any subdivisions or subsidiaries of the foregoing entities;
(ii) Individuals or entities providing child care services who are in receipt of child care subsidies pursuant to Title 5-C or Section 410 of the Social Services Law, except that such providers may be considered a covered provider if it also receives State funds or State-authorized payments that are not child care subsidies pursuant to Title 5-C or Section 410 of the Social Services Law and would otherwise satisfy the criteria in this definition;
(iii) Individual professionals, partnerships, S Corporations, or other entities, at least seventy-five percent of whose program services paid for by State funds or State-authorized payments are provided by the individual professional(s), by the partner(s), or by the owner(s) of the corporation or entity, rather than by employees or independent contractors employed or retained by the entity, as determined by the amounts obtained in State funds or State-authorized payments for such program services;
(iv) Individuals or entities providing primarily or exclusively products, rather than services, in exchange for State funds or State-authorized payments, including but not limited to pharmacies and medical equipment suppliers. For the purpose of applying this exception, the percentage of revenues derived from products rather than from services shall be used; and
(v) Entities within the same corporate family as a covered provider, including parent or subsidiary corporations or entities, except where such a corporation or entity would otherwise qualify as a covered provider but for the fact that it has received its State funds or State-authorized payments from a covered provider rather than directly from a governmental agency. (e) “Covered reporting period” shall mean the provider’s most recently completed annual reporting period, as defined herein, commencing on or after July 1, 2013.
(f) Department shall mean Department of State.
(g) Executive compensation shall include all forms of cash and noncash payments or benefits given directly or indirectly to a covered executive, including but not limited to salary and wages, bonuses, dividends, distributions to a shareholder/partner from the current reporting period’s earnings where such distributions represent compensatory or guaranteed payments or compensatory partnership profits allocation or compensatory partnership equity interest for services rendered during such reporting period, and other financial arrangements or transactions such as personal vehicles, housing, below-market loans, payment of personal or family travel, entertainment, and personal use of the organization’s property, reportable on a covered executive’s W-2 or 1099 form, except that mandated benefits (e.g., Social Security, worker’s compensation, unemployment insurance and short-term disability insurance), and other benefits such as health and life insurance premiums and qualified retirement plan pension contributions (including 401, 403, 457(b), and 457(f) plans, and deferred compensation plans) that are consistent with those provided to the covered provider’s other employees shall not be included in the calculation of executive compensation. For the purposes of this definition, such benefits shall be considered consistent with those provided to other employees where the intended value of the benefit is substantially equal, even where the cost to the covered provider to provide such a benefit may differ. Notwithstanding the foregoing, with respect to executive non-qualified deferred compensation, executive compensation shall include only that amount contributed or accrued during the reporting period. (h) Program services are those services rendered by a covered provider or its agent directly to and for the benefit of members of the public (and not for the benefit or on behalf of the State or the awarding agency) that are paid for in whole or in part by State funds or State-authorized funds. Program services shall not include:
(i) that portion of the salaries and benefits of staff providing particular program services, including for example, employees or contractors providing direct care to clients, and supervisory personnel and support personnel whose work is attributable to a specific program in whole or in part and contributes directly to the quality or scope of the program services provided;
(iii) that portion of expenses incurred in connection with and attributable to the provision of particular program services, including for example, travel costs to and from client residences, direct care supplies, public outreach or education or personnel training to facilitate program services delivery, information technology and computer services and systems directly attributable to program services such as, for example, electronic patient records systems to facilitate improved patient care or computer systems used in program services delivery or documentation of program services provided, quality assurance and control expenses, and legal expenses necessary to accomplish particular program service objectives.
(v) expenses of an amount greater than $10,000 that would otherwise be administrative, except that they are either non-recurring (no more frequent than once every five years) or not anticipated by a covered provider (e.g., litigation-related expenses). (vi) that portion of the salaries and benefits of staff performing policy development or research.
(j) Related organization shall have the same meaning as the same term in Schedule R of the Internal Revenue Service’s Form 990 except that for purposes of this regulation a related organization must have received or be anticipated to receive State funds or State-authorized payments from a covered provider during the reporting period.
(l) State-authorized payments refer to those payments of funds that are not State funds but which are distributed or disbursed upon a New York state agency’s approval or by another governmental unit within New York State upon such approval, including but not limited to the federal and county portions of Medicaid program payments approved by the state agency. The Department shall publish a list of government programs whose funds shall be considered State-authorized payments prior to the effective date of this regulation. For purposes of this regulation, State-authorized payments shall not include any payments solely for the following purposes:
(1) procurement contracts awarded on a “lowest price” basis pursuant to section 163 of the State Finance Law; (2) awards to State or local units of government except to the extent such funds or payments are used by such government unit to pay covered providers to provide program services through a contract or other agreement;
(8) funds expressly intended to pay exclusively for administrative expenses, including but not limited to Community Service Block Grant Program technical assistance contract funding for board development.
(m) State funds are those funds appropriated by law in the annual state budget pursuant to Article VII, Section 7 of the New York State Constitution. The Department shall publish a list of government programs whose funds shall be considered State funds prior to the effective date of this regulation. For purposes of this Part, State funds shall not include any payments solely for the following purposes:
(1) procurement contracts awarded on a “lowest price” basis pursuant to section 163 of the State Finance Law;
(6) awards to for-profit corporations or other entities engaged exclusively in commercial or manufacturing activities and not in the provision of program services; or
(a) Limits on Allowable Administrative Expenses. No less than seventy-five percent of the covered operating expenses of a covered provider paid for with State funds or State-authorized payments shall be program services expenses rather than administrative expenses. This percentage shall increase by five percent each year until it shall be no less than eighty-five percent in 2015 and for each year thereafter. In determining whether an expense is a program service expense or an administrative expense, a covered provider may allocate a portion of the expense to each type if such allocation is supported by the nature of the expense. Such allocation may include allocation of portions of an employee’s time and compensation to administrative or program services. Commencing on July 1, 2013, the limits on allowable administrative expenses pursuant to this Part shall be effective and applicable to each covered provider on the first day or each provider’s respective covered reporting period.
(b) Subcontractors and Agents of Covered Providers. The restriction on allowable administrative expenses in subdivision (a) of this section and the reporting requirements in section 144.7 of this Part shall apply to subcontractors and agents of covered providers if and to the extent that such a subcontractor or agent has received State funds or State-authorized payments from the covered provider to provide program or administrative services during the reporting period and would otherwise meet the definition of a covered provider but for the fact that it has received State funds or State-authorized payments from the covered provider rather than directly from a governmental agency. A covered provider shall incorporate into its agreement with such a subcontractor or agent the terms of these regulations by reference to require and facilitate compliance. Upon request, covered providers shall promptly report to the funding or authorizing agency the identity of such subcontractors and agents, along with any other information requested by that agency or by the Department or its designee. A covered provider shall not be held responsible for a subcontractor’s or agent’s failure to comply with these regulations.
(c) Covered Providers Receiving State Funds or State-Authorized Payments From County or Local Government or From Entity Contracting on its Behalf. The Department or its designee, rather than the county or local unit of government or an entity on behalf of such government, shall be responsible for obtaining the necessary reporting from and compliance by such covered providers, and shall issue guidance to affected county and local governments to set forth the procedures by which the Department or its designee shall do so.
(d) Covered Providers with Multiple Sources of State Funds or State-Authorized Payments. If a covered provider receives State funds or State-authorized payments from multiple sources, the provider’s compliance with the restriction on allowable administrative expenses in subsection (a) of this section shall be determined based upon the total amount program services expenses and administrative expenses paid for by such funding received from all of such sources. As set forth in section144.7, the covered provider shall report all of such State funds and State-authorized payments, and the expenses paid for by such funding, in the form and at the time specified by the Department or its designee.
144.5 Limits on Executive Compensation.
(a) Except if a covered provider has obtained a waiver pursuant to section 144.6 of this Part, a covered provider as defined in this regulation shall not use State funds or State-authorized payments for executive compensation given directly or indirectly to a covered executive in an amount greater than $199,000 per annum, provided, however, that the Department shall review this figure annually to determine whether adjustment is necessary based on appropriate factors and subject to the approval of the Director of the Division of the Budget. Commencing on July 1, 2013, the limits on executive compensation pursuant to this Part shall be effective and applicable to each covered provider on the first day of each covered provider’s respective covered reporting period.
(b) Except if a covered provider has obtained a waiver pursuant to section 144.6 of this Part, where a covered provider’s executive compensation given to a covered executive is greater than $199,000 per annum (including not only State funds and State-authorized payments but also any other sources of funding), and either
(1) greater than the 75th percentile of that compensation provided to comparable executives in other providers of the same size and within the same program service sector and the same or comparable geographic area as established by a compensation survey identified, provided, or recognized by the Department and the Director of the Division of the Budget; or
(2) was not reviewed and approved by the covered provider’s board of directors or equivalent governing body(if such a board or body exists) including at least two independent directors or voting members, or such review did not include an assessment of appropriate comparability data;
then such covered provider shall be subject to the penalties set forth in section 144.8 of this Part. To determine whether a covered provider may be subject to penalties, such provider shall provide, upon request by the Department or its designee, contemporaneous documentation in a form and level of detail sufficient to allow such determination to be made.
(c) Program Services Rendered by Covered Executives. The limit on executive compensation pursuant to this section shall not be applied to limit reimbursement with State funds or State-authorized payments for reasonable compensation paid to a covered executive for program services, including but not limited to supervisory services performed to facilitate the covered provider’s program services, rendered by the executive outside of his or her managerial or policy-making duties. Documentation of such program services rendered shall be used by the covered provider to determine that percentage, if any, of the covered executive’s compensation that is attributable to program services and that compensation shall not be considered in the calculation of his or her executive compensation. Such documentation shall be maintained and provided to the Department or its designee upon request. Clinical and program personnel in a hospital or other entity providing program services, including chairs of departments, heads of service, chief medical officers, directors of nursing, or similar types of personnel fulfilling administrative functions that are nevertheless directly attributable to and comprise program services shall not be considered covered executives for purposes of limiting the use of State funds or State-authorized payments to compensate them.
(d) Covered Providers with Multiple Sources of State Funds or State-Authorized Payments. If a covered provider receives State funds or State-authorized payments from multiple sources, the provider’s compliance with the limits on executive compensation in subdivision (a) shall be determined based upon the total amount of such funding received and the reimbursements received from all sources of State funds or State-authorized payments. As set forth in section 144.7 of this Part, the covered provider shall report all of such State funds and State-authorized payments in the form specified by the Department or its designee.
(e) Subcontractors and Agents of Covered Providers. The limits on executive compensation in subdivision (a) and (b) of this section and the reporting requirements in section 144.7 of this Part shall apply to subcontractors and agents of covered providers if and to the extent that such a subcontractor or agent has received State funds or State-authorized payments from the covered provider to provide program or administrative services during the reporting period and would otherwise meet the definition of a covered provider but for the fact that it has received State funds or State-authorized payments from the covered provider rather than directly from a governmental agency. A covered provider shall incorporate into its agreement with such a subcontractor or agent the terms of these regulations by reference to require and facilitate compliance. Upon request, covered providers shall promptly report to the funding or authorizing agency the identity of such subcontractors and agents, along with any other information requested by that agency or by the Department or its designee. A covered provider shall not be held responsible for a subcontractor’s or agent’s failure to comply with these regulations.
(f) Covered Providers receiving State Funds or State-Authorized Payments from county or local government or From Entity Contracting on its Behalf. The Office or its designee, rather than the county or local unit of government or an entity contracting on behalf of such government, shall be responsible for obtaining the necessary reporting from and compliance by such covered providers, and shall issue guidance to affected county and local governments to set forth the procedures by which the Office or it designee shall do so.
(g) Other Limits on Executive Compensation. If the contract, grant, or other agreement is subject to more stringent limits on executive compensation, whether through law or contract, such limits shall control and shall not be affected by the less stringent limits imposed by these regulations. However, the definition and interpretation of terms in this Part shall not be affected or limited by the definition or interpretation of terms in other regulations or agreements.
(1) covered providers must apply for a waiver for any contracts or agreements with covered executives for executive compensation that exceeds or otherwise fails to comply with these regulations if such contracts or agreements extend beyond April 1, 2015; and
(2) renewals of such contracts or agreements after the completion of their term must comply with these regulations.
(a) Waivers for Limit on Executive Compensation. The Department or its designee and the Director of the Division of the Budget may grant a waiver to the limits on executive compensation in section 144.5 of this Part for executive compensation for one or more covered executives, or for one or more positions, during the reporting period and, where appropriate, for a longer period upon a showing of good cause. To be considered, an application for such a waiver must comply with this subsection in its entirety.
(1) The application must be filed no later than concurrent with the timely submission of the covered provider’s EO #38 Disclosure Form required pursuant to section 144.7 of this Part for the reporting period for which the waiver is requested.
The application shall be transmitted in the manner and form specified by the Department or its designee and the Director of the Division of the Budget. The Department shall consider untimely waiver applications where a reasonable cause for such delay is shown. (2) The following factors, in addition to any other deemed relevant by the Department or its designee and the Director of the Division of the Budget, shall be considered in the determination of whether to grant a waiver:
(ii) the extent to which the covered provider would be unable to provide the program services reimbursed with State funds or State-authorized payments at the same levels of quality and availability without obtaining reimbursement for executive compensation given to a covered executive in excess of the limits in section 144.5 of this Part;
(3) A waiver to the limits set forth in section 144.5 of this Part shall be granted only where a covered provider has demonstrated good cause supporting such a waiver, and has provided any documentation requested by the Department or its designee or the Director of the Division of the Budget to support such a waiver. Unless additional information has been requested but not received from the covered provider, a decision on a timely submitted waiver application shall be provided no later than sixty (60) calendar days after submission of the application.
(5) Unless already publicly disclosed, information provided by a covered provider to the Office in connection with a waiver application regarding the limits on executive compensation shall not be subject to public disclosure under the State’s Freedom of Information Law.
(b) Waivers for Limit on Reimbursement for Administrative Expenses. The Department or its designee and the Director of the Division of the Budget may grant a waiver to obtain reimbursement for administrative expenses incurred during the reporting period and thereafter in excess of the limit set forth in section 144.4 of this Part upon a showing of good cause. To be considered, an application for such a waiver must comply with this subsection in its entirety.
(1) The application must be filed no later than concurrent with the timely submission of the covered provider’s EO#38 Disclosure Form for the period for which the waiver is requested, as required pursuant to section 144.7 of this Part. The Department shall consider untimely waiver applications where a reasonable cause for such delay is shown. (2) The following factors, in addition to any others deemed relevant by the Department or its designee and the Director of the Division of the Budget, shall be considered in the determination of whether to grant a waiver:
(3) A waiver to the limit set forth in section 144.4 of this Part shall be granted only where a covered provider has demonstrated good cause supporting such a waiver, and has provided any documentation requested by the Department or its designee or the Director of the Division of the Budget to support such a waiver. Unless additional information has been requested but not received from the covered provider, a decision on a timely submitted waiver application shall be provided no later than sixty (60) calendar days after submission of the application.
(5) Unless already publicly disclosed, information provided by a covered provider to the Department in connection with a waiver application regarding the limit on administrative expenses shall not be subject to public disclosure under the State’s Freedom of Information Law. (c) Denial of Waiver Request.
(1) If the Department or its designee or the Director of the Division of the Budget propose to deny a request for waiver made pursuant to section 144.6 of this Part, the applicant shall be given written notice of the proposed denial, stating the reason or reasons for such proposed denial. Such notice shall be sent by certified mail and shall be a final determination to be effective thirty (30) calendar days from the date of the notice, unless reconsideration is requested.
(2) If the Department or its designee or the Director of the Division of the Budget provides a notice of proposed denial, the applicant may request consideration of the proposed denial by submitting a written request for reconsideration within thirty (30) calendar days of the date of the notice of proposed denial. Submission of a request for reconsideration within thirty (30) calendar days shall stay any action to deny an applicant’s request for a waiver, pending a decision regarding such request for reconsideration, and shall stay any action to enter into a contract or other agreement. Any vouchers submitted by the applicant for payment by the Department during which such reconsideration is pending may be considered incomplete at the Department’s discretion. (3) The written request for reconsideration shall be signed by the owner(s) or chief executive officer of the applicant, and shall include all information the applicant wishes to be considered, including any written documentation that would controvert the reason(s) for the denial or disclose that the denial was based upon a mistake of fact.
(a) Reporting by Covered Providers. Beginning after the effective date of this regulation, covered providers shall submit a completed EO#38 Disclosure Form for each reporting period. Such form shall be submitted no later than one hundred eighty (180) calendar days following the covered reporting period, unless otherwise authorized. Such form shall be submitted in the manner and form specified by the Department or its designee. Covered providers shall further provide the information requested in that form, and any other information requested, upon the request of the Department or its designee at any time during the term of or prior to the execution of any contract or agreement with such provider.
(b) Covered providers receiving State funds or State-authorized payments from county or local government or from an entity contracting on behalf of such government must report directly to the Department as required by this section. The county or local government shall advise such covered providers of their obligation to report directly to the Department under this section, but shall not be responsible for receiving or forwarding such reports to the Department.
(c) Failure to Report. A covered provider’s failure to submit a completed EO#38 Disclosure Form, or to provide additional or clarifying information at the request of the Department or its designee, may result in the termination or non-renewal of a contract or agreement for State funds or State-authorized payments.
144.8 Penalties.
(a) Notice of Preliminary Determination of Non-Compliance. Whenever it is determined that a covered provider may not be in compliance with the requirements of sections 144.4 or 144.5 of this Part and has not obtained a waiver, the provider shall be notified in writing of the basis for that determination. Such notice shall provide the covered provider with an opportunity and a procedure to submit additional or clarifying information within thirty (30) calendar days of the provider’s receipt of such notice to demonstrate compliance with this Part. Failure to submit additional or clarifying information within the required time period shall result in the determination of non-compliance becoming final.
(b) Corrective Action Period. If the determination of non-compliance becomes final as set forth in subdivision (a) or if the Department or its designee determines, after reviewing and considering any information submitted by the covered provider, that such provider is not in compliance with the requirements of sections 144.4 or 144.5 of this Part, the provider shall receive notice of such determination and a notice to cure. Such notice shall allow the covered provider a period of not less than six months to correct the violation(s) identified (the “corrective action period”) prior to additional enforcement action or penalties being imposed, and shall require that the covered provider submit within thirty (30) calendar days a corrective action plan (“CAP”) for approval by the Department or its designee.
(c) Corrective Action Plan. Within thirty (30) calendar days of receipt of the covered provider’s CAP, the Office or its designee shall either approve such CAP or request clarification or alterations. The covered provider shall make such alterations to the CAP as may be reasonably required by the Departmentor its designee. Once the CAP has been approved and the covered provider notified, and unless otherwise provided in the approved CAP, the covered provider shall have six months to complete the CAP and comply with this Part.
(2) Issue a final determination of non-compliance, together with a notice of the sanctions which the Department seeks to impose. Such sanctions may include:
(i) redirection of State funds or State-authorized payments to be used to provide program services, where possible and consistent with federal and state laws;
(ii) suspension, modification, limitation, or revocation of the provider’s license(s) to operate program(s) for the delivery of program services;
(iii) suspension, modification or termination of contracts or other agreements with the covered provider; and
(iv) any other lawful actions or penalties deemed appropriate by the Department or its designee.
(e) Opportunity for Appeal. Within thirty (30) calendar days of receipt of a final determination of noncompliance and notice of proposed sanctions, a covered provider may request an administrative appeal by submitting a written request to the name and address set forth in the notice. The request must include a detailed explanation of the legal and factual bases for the provider’s challenge to the determination and all documentation in support of the provider’s position. If a request for an administrative appeal is not made within the required thirty (30) calendar days, the determination of noncompliance shall become final and the proposed sanction shall be imposed. Unless the Department seeks to impose a sanction for which an administrative hearing is otherwise required by statute or regulation, the covered provider’s appeal shall be limited to an administrative review of the record. Following the review, the covered provider shall be provided with a final written determination setting forth the findings of fact and conclusions of law that support the determination. If the provider is found to be non-compliant, the proposed sanction may be imposed forthwith.
144.9 Severability.
If any provision of this Part, or any application thereof to any person or circumstance, is found to be invalid, such invalidity shall not affect any other provisions or applications of this Part that may be given effect without the invalid provisions or applications. The provisions of this Part are thus declared to be severable.
Assessment of Public Comment received in response to proposed new Part 144 to Title 19 NYCRR: Limits on Administrative Expenses and Executive Compensation
A Notice of Revised Rule Making was published in the State Register on October 31, 2012. The New York State Department of State (NYSDOS) 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. NYSDOS’s response is provided for each issue or concern.
Issue/Concern: The Internal Revenue Service (IRS) rules and the Executive Order No. 38 regulations are not necessarily compatible concerning the issue of executive compensation. For instance, an organization that provides executive compensation which is reasonable pursuant to IRS rules may suddenly be subjected to penalties under the regulations. Response: The participating State agencies and the Division of the Budget (DOB) are aware that there are differences between the IRS rules and the revised regulations. The goal of these regulations is to implement Executive Order No. 38. Regarding the issue of penalties, the penalty provisions would not be applied “suddenly.” Instead the penalties section at 19 NYCRR § 144.8 provides for notification of non-compliance, the submission of additional or clarifying information, a corrective action period, and the opportunity to appeal.
Issue/Concern: The revised regulations create complicated new definitions and reporting requirements. Implementing the revised regulations will add significantly to the providers’ administrative costs. Response: The participating State agencies will maintain on-line guidance to assist providers in complying with the new regulations. The participating State agencies are developing with DOB a stream-lined reporting system that is anticipated to be operational prior to the effective date of the regulations to ensure that the burden of reporting the information required by these regulations will be minimized. Issue/Concern: The limits on administrative expenses, set forth in 19 NYCRR § 144.4 (a), should require the Generally Accepted Accounting Principles (GAAP) as the allocation methodology for differentiating between administrative expenses and program expenses. Response: The revised regulations set forth specific definitions for both administrative expenses and program services expenses, which are intended to be used for the purposes of implementing Executive Order No. 38.
Issue/Concern: The regulations may set a precedent for others to impose similar restrictions on the use of funds for administrative expenses. Covered providers may lose their ability to use their best judgment to determine how to operate effectively and efficiently. Response: Executive Order No. 38 is encouraging the effective and efficient delivery of program services to New Yorkers by encouraging the redirection of funds from administrative expenses to service delivery. Issue/Concern: Agencies should periodically re-evaluate the impact of the limitation on administrative expenses to ensure that organizations are not cutting back on key administrative functions in such a manner as to jeopardize their ability to deliver quality program services. Response: The participating State agencies together with DOB plan to monitor the impact of the regulations and make periodic updates as needed.
Issue/Concern: A provision should be added to the regulations requiring agencies to reevaluate the limitations on administrative expenses every five years. Response: Pursuant to State Administrative Procedure Act § 207, NYSDOS is required to complete a periodic review of existing regulations, which includes an analysis of the need for and the legal basis of the regulations and invites public comment on the continuation or modification of the regulations.
Issue/Concern: Providers may need to pay more than $199,000 per annum to find the quality leaders needed to facilitate the growth of their organizations. Response: The regulations take this concern into consideration in 19 NYCRR §§ 144.5 (b) and 144.6. Consideration is given to factors including, but not limited to, the compensation provided to comparable executives; the qualifications and experience possessed by or required of the covered executive; the provider’s efforts to secure other comparable executives; and/or the nature, size and complexity of the covered provider’s operations and program services.
Issue/Concern: Payments through municipal or county contracts should be excluded from “State-Authorized Payments” and “State Funds”. Including indirect receipt of State funds through contracts with other government units will intrude on local contracting authority, burden local governments, and will confuse service providers that will have no way of calculating how much of any local government contract should be included as state funds or state-authorized payments.
Response: The regulations cover those funds that flow through a county or local government but which are either State funds or State-authorized payments. The regulations would not adequately address the targeted problems if only providers that contracted directly with a State agency were covered, and would create inequities among providers depending upon whether their funding was received directly or indirectly from the State. No additional changes to the text of the regulation are necessary in relation to this comment. Issue/Concern: The regulations should cover only state-authorized payments and not other state funds. In contrast to state-authorized payments, when state funds are awarded the contracting agency has the opportunity to review, negotiate, and if appropriate reject a providers proposed compensation for its staff under the contract and that administrative expenses.
Response: The regulations cover both State funds and State-authorized payments to establish a baseline standard for the use of taxpayer funds distributed to providers for the performance of program services in the State of New York. The regulations provide room for the contracting agency to incorporate additional safeguards by expressly stating that more stringent limits made applicable by any contract, grant, or other agreement shall control. No additional changes to the text of the regulation are necessary in relation to this comment. Issue/Concern: The use of “in-state revenue” for determining minimum state funding will result in confusion for providers in circumstances where philanthropic support is not dedicated to a specific program or activity. Minimum state funding should be based on total revenues and not “in-state revenues”.
Response: In such instances, the regulations provide that a provider’s method of calculating in-state revenues for purposes of determining tax liability or in connection with completion of its financial statements shall be deemed acceptable. No additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: The 75th percentile stipulation for waiver exemptions creates an artificial and arbitrary line that will result in unintended consequences by encouraging organization to increase pay to the 75th percentage threshold and requiring providers paying above the threshold to hire less qualified staff because of the insecurity of obtaining a waiver.
Response: The 75th percentile, as applied to covered executives receiving compensation greater than $199.000 per annum, provides a benchmark to ensure that State funds or State-authorized payments paid by this agency to providers are not used to support excessive compensation. It is anticipated that NYSDOS and the State will assess the impact on salaries, if any, on an ongoing basis and will make any necessary adjustments to the regulations accordingly. It should be noted, however, that where good cause may be shown in support of a specific covered executive’s executive compensation, the option of a waiver is made available by the regulations. No additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: The definition of executive compensation should be amended to provide that the reporting of any of the non-cash benefits listed in this definition on a covered executive’s W-2 form should be equally applicable and included.
Response: The regulation provides that the non-cash benefits reportable on a covered executive’s W-2 Form would be equally applicable and included within the definition of executive compensation. No additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: With regard to compensation surveys, covered providers should be permitted to develop and maintain a record of their own comparable salary information or, at minimum, to explicitly allow the use of surveys based on information about compensation that has been reported for comparable positions at comparable organizations on the IRS Form 990.
Response: Covered providers may use compensation surveys that have been recognized, provided or identified by the State as valid for E.O. No. 38 purposes. To the extent a provider uses a compensation survey or data set not so identified or provided by the State, it is anticipated that the provider will be required to submit such survey or data set to the State for review and possible acceptance/recognition, in connection with its submission of a required Disclosure Form or Waiver Application. No additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: The requirement for board approval of executive compensation for covered providers should be clarified to expressly permit the delegation of compensation approval to a committee with specifically delegated authority.
Response: The regulations contemplate review and approval of executive compensation greater than $199,000 per annum by the covered provider’s board of directors or equivalent governing body (if such board or body exists) including at least two independent directors or voting members. It may be noted that the text of the regulation has been revised to include “board or body” in the parenthetical at 19 NYCRR §144.5(b)(2). No changes are necessary, however, in relation to this comment.
Issue/Concern: The words “or administrative” should be deleted from the first sentence of NYCRR § 144.5(e) of the revised regulations in order to avoid any implication that the Revised Regulations apply to the executive compensation or administrative expenses of an “agent” providing purely administrative services and not the program services that are the subject of the contract when those services are paid out of state funds or state-authorized payments.
Response: The regulations provide, in NYCRR § 144.5(e), that the limitations on executive compensation apply to subcontractors and agents of covered providers “if and to the extent that” such a subcontractor or agent has received state funds or state-authorized payments from the covered provider to provide program or administrative services during the reporting period “and would otherwise meet the definition of a covered provider but for the fact that it has received State funds or State-authorized payments from the covered provider rather than directly from a governmental agency.” Therefore, no additional changes to the text of the regulation are necessary in relation to this comment. Issue/Concern: The deadline for waiver applications, at least for the reporting period beginning April 1, 2013, should be moved back in time to March 1, 2013.
Response: The revised regulations permit NYSDOS to consider waiver applications that do not conform to the timeframes provided in the regulations where good cause can be demonstrated for not conforming to the requisite timeframes. In addition, the text of the revised regulations at 19 NYCRR §§ 144.6(a)(1) and 144.6(b)(1) has been amended to permit waiver applications to be submitted no later than concurrently with the timely submission of the covered provider’s E.O. No. 38 Disclosure Form required pursuant to section 144.7 for the reporting period for which the waiver is requested. Issue/Concern: With regard to review of executive compensation for which a waiver application is submitted, section 144.6(a)(2)(iv) should be amended to expressly permit review and approval by a committee with specifically delegated authority.
Response: Section 144.6(a)(2) of the regulation sets forth a non-exclusive list of factors for consideration in determining whether to grant a waiver application in regard to the executive compensation limitations. The subject factor is “the provider’s review and approval process for the executive compensation that is the subject of the waiver,” which will allow for consideration of processes involving committees with delegated authority from the Board. No additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: The regulations should provide that if NYSDOS fails to render a decision on a timely submitted waiver application within 60 days, the waiver application shall be deemed to be granted.
Response: The regulations require action on a timely submitted waiver application within 60-days, but do not prescribe the remedy for a failure to render a decision within such timeframe. It is therefore anticipated that a failure to abide by 60-day timeframe may result in an Article 78 action in the nature of mandamus to compel action on an application. Issue/Concern: Section 144.6(c)(2) should be clarified to provide the meaning of the stay of “any action to enter into a contract or other agreement” that is triggered by a request for reconsideration of a waiver application made within 30 days of denial. In addition, the practical consequences of such a “stay” should be clarified.
Response: To ensure that the state does not commit additional resources to a provider that may devote such funds to excessive executive compensation or administrative expenses, in the event a waiver proposed for denial and reconsideration is requested any pending action to enter a contract or agreement may be stayed. Practically, this means that grounds to suspend the prompt contracting timeframes may be established during the period of reconsideration, and that the signing of a pending contract would not take place until the reconsideration is concluded. No additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: Executive Order No. 38 and the proposed regulations discriminate against nonprofit organizations. These standards should also be applied to people on state, county, city, and public authority payrolls as well as those on payrolls of private for-profit corporations.
Response: NYSDOS agrees that ensuring fiscal responsibility is critical at all levels of government. These regulations are intended to curb excessive and unjustified executive compensation and administrative expenditures at providers who benefit from the use of a significant amount of taxpayer funds. It should be noted that Executive Order No. 38 and the proposed regulations are not limited to nonprofit organizations. This comment does not relate to any changes to the original regulation text. No changes to the text of the regulation are necessary in relation to this comment. Issue/Concern: The proposed regulations are premised on the inaccurate notion that salaries at not-for-profit corporations receiving State funding are bloated.
Response: This comment does not relate to any changes to the original regulation text. No changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: A goal of lowering administrative overhead and minimizing compensation will not translate into better addressing the social problems that not-for-profit corporations combat. The taxpaying public does not want arbitrary spending thresholds met. It wants complicated social problems solved.
Issue/Concern: Governor Cuomo should act to rescind Executive Order No. 38, as it is ill-conceived, duplicative, over-reaching, and counterproductive.
Issue/Concern: The effective date of provisions in the proposed regulations requires clarification with regard to: (a) limits on executive compensation and limits on administrative expenses; (b) submission of waiver applications regarding executive compensation; (c) submission of waiver applications regarding administrative expenses; and (d) reporting periods. Clarification that the first fiscal year for which a waiver, if necessary, is required to be filed is the first full fiscal year commencing after April 1, 2013, i.e., the 2014 fiscal year for calendar year providers and the fiscal year commencing July 1, 2013 for providers with a July 1st fiscal year; and that in no event is a waiver required to be filed prior to April 1, 2013.
Response: Implementation of the limits imposed by the regulation is intended to begin with the start of a provider’s first reporting period fully occurring following adoption of the regulation. The date certain of April 1, 2013, as initially provided has been modified for clarification. This change is not substantial as it does not increase the impact/burden on providers and more precisely affects the intent of the regulation.
Issue/Concern: The mechanism to be used by the state for identifying, providing or recognizing compensation surveys should be clarified. It is recommended that the proposed regulations be amended to include provisions regarding how compensation surveys are “identified, provided or recognized” by the state.
Response: It is anticipated that guidance issued by the State will identify compensation surveys deemed to provide acceptable data as well as include criteria to be used by the State in evaluating any surveys or comparable data sets proposed for use by providers. No additional changes to the text of the regulation are necessary at this time in relation to this comment.
Issue/Concern: The proposed regulations should include a mechanism for identifying a “lead agency” that will receive any waiver applications. It is recommended that the regulations be amended to include a provision designating a “lead agency” that would receive waiver applications and whose decision would be binding for all state agencies subject to EO #38. Lead agency status could be easily determined by the state agency that provides the greatest amount of funding to a covered provider.
Response: The regulations provide that the waiver application “shall be transmitted in the manner and form specified by NYSDOS or its designee and the Director of the Division of the Budget.” Guidance issued by the State will provide clarification on the process for submission of applications. No additional changes to the text of the regulation are required at this time in response to this comment.
Issue/Concern: The exemption for contracts for executive compensation agreed to prior to April 1, 2012 must be clarified with regard to the meaning of the caveat providing that a waiver may be required, however, “if such contracts or agreements extend beyond April 1, 2014.”
Response: The regulation provides and exemption for contracts or other agreements entered into before July 1, 2012, “except that” a waiver is required if such contracts or other agreements extend beyond April 1, 2015. Therefore, agreements/contracts entered prior to July 1, 2012 but extending beyond April 1, 2015 are not exempt and a waiver is required for such executive compensation pursuant to the timeframes provided in the regulation. No additional changes to the text of the regulation are required at this time.
Issue/Concern: Assuming a contract entered into prior to April 1, 2012, and extending beyond April 1, 2014, is this contract exempt for the reporting period commencing after April 1, 2013, i.e., calendar year 2014 for July 1, 2013 for fiscal year providers? If it is not, under what circumstances will a contract be exempt under this subsection? What is considered acceptable to meet the definition of “other agreements”?
Response: The regulation provides that contracts or other agreements extending beyond April 1, 2015 are not exempt from the executive compensation limitations. “Other agreements” should be construed based on the plain meaning of the term as encompassing any mutual understanding pursuant to which executive compensation is provided to a covered executive. No additional changes to the text of the regulation are required at this time. Issue/Concern: Please confirm that, when a provider is subject to a SED cap on executive compensation that is lower than $199,000, then in such cases, (i) the SED cap is deemed “more stringent” than the EO #38 cap, (ii) the SED cap supersedes the EO #38 cap on executive compensation and thereby, (iii) the provider is not subject to the provisions of EO#38 regarding executive compensation or the requirement to obtain a waiver.
Response: This comment poses a hypothetical question which cannot be answered fully and properly based on the limited information provided in the letter of comment. The comment does not address the changes to the original text of the regulation. No additional changes to the regulatory text are required based on this comment.
Issue/Concern: The entire approach to executive compensation is flawed because the state retains the authority to deny waivers to all executive salary in excess of the 75th percentile thereby calling into question the integrity and reasonableness of the entire process of reviewing executive compensation. Response: This comment does not pertain to the specific changes made to the original text of the regulation. The denial of a waiver does not prohibit a provider from giving its executives a significantly higher-than-standard compensation package; the regulation does, however, subject a covered provider who chooses to provide such executive compensation without receiving a waiver to possible restrictions on its ability to receive and use of taxpayer funds and other penalties and corrective actions. No additional changes to the text of the regulation are required in response to this comment. Issue/Concern: When a waiver is granted for an executive salary, the waiver should be applicable not only to the executive, but to the provider for that executive position. If an executive position becomes vacant during the period for which a waiver has been approved, then the waiver should also apply to the executive hired to fill the vacancy until the waiver expires.
Response: If a waiver is granted for an executive position, the waiver may apply to either the person or the position at the provider’s option for that specified period of time.
Issue/Concern: Funds provided by SED or authorized by SED should be excluded entirely from the EO#38 regulations. Since SED is not subject to E.O. No. 38, funding provided or authorized by SED should not be considered as “state funds or state-authorized funds.”
Response: This comment does not address any specific changes to the original text of the regulation. No additional changes to the text of the regulation are required at this time in response to this comment.
Issue/Concern: The definition of “subcontractors and agents of covered providers” should be amended to clarify “would otherwise meet the definition of a covered provider.” This section should apply only if the subcontractor or agent meets that definition and at the same time is supplying a service which otherwise, and on its own merits, would otherwise be the recipient of State funds for that service.
Response: The regulations clarify, in NYCRR § 144.5(e), that the limitations on executive compensation apply to subcontractors and agents of covered providers “if and to the extent that” such a subcontractor or agent has received state funds or state-authorized payments from the covered provider to provide program or administrative services during the reporting period “and would otherwise meet the definition of a covered provider but for the fact that it has received State funds or State-authorized payments from the covered provider rather than directly from a governmental agency.” Therefore, no additional changes to the text of the regulation are necessary in relation to this comment.
Issue/Concern: The definition of “covered employee” excludes “clinical and program personnel in a hospital or other entity providing program services, including chairs of departments, head of service, chief medical officers, directors of nursing, or similar types of personnel fulfilling administrative functions that are nevertheless directly attributable to and comprise program services.” Each state agency subject to E.O. No. 38 should prepare a schedule identifying those employees who will be considered as program service employees and are thus, exempt from the cap on executive compensation.
Response: NYSDOS has considered this recommendation and has determined that no additional changes to the text of the regulation are required.
Issue/Concern: The proposed regulations should be amended to change “contributions by out-of-state individuals or entities for in-state activities” to “revenues from out-of-state individual or entities for in-state activities.” The word “contributions” could be misconstrued as charitable contributions and clearly is intended to refer to revenue derived from services provided to individuals or entities located outside of New York who receive such services within the state.
Response: Charitable contributions may be included in the provider’s calculation of its “in-state revenue,” so long such inclusion accords generally with the method of accounting used by the provider in preparing its annual financial statements or other required reporting to NYSDOS.