Nonprofits Testify on Executive & Admin Comp Caps

The NY Nonprofit Press reported that nonprofits got their first chance on Monday to testify publicly in response to Governor Andrew Cuomo’s move to limit State reimbursement for executive compensation and administrative expenses. Three of the four individuals invited to testify before the NYS Senate Committee on Investigations and Government Operations agreed that the Governor’s Executive Order to cap state reimbursement to nonprofit CEOs and other employees at $199,000 would do little to address what they described as a relatively small number of abuses among the thousands of nonprofits that contract with the state. Conversely, they argued, the Executive Order would add significant bureaucratic and compliance burdens to a sector that is already struggling due to budget cuts and unfunded regulatory mandates.

The nonprofit representatives maintained that legal, regulatory and procurement mechanisms for monitoring and controlling executive compensation and administrative expense reimbursement already exist – even if frequently underutilized. They called for strengthening and coordinating use of these provisions to identify and address individual cases of abuse rather than imposing a new series of broad-brush compliance requirements on thousands of nonprofits where no problem exists.

A fourth witness, Jayne Cammisa of the NYS State Nursing Association, praised the Governor’s initiative, citing “exorbitant executive salaries in some hospitals and nursing homes” even as they are implementing significant reductions in the numbers of “bed-side” nursing staff.

“Cases of excessive executive compensation and abuse are few and far between and
what does exist, needs to be exposed and eliminated,” said Doug Sauer, CEO of the New York Council of Nonprofits (NYCON), noting that NYCON represents 3,100 small and mid-sized nonprofits. “Under-compensation is a much more prevalent and serious issue.” Sauer went on to note that “charities in New York State, and particularly those that contract with the State, are arguably the most regulated in the Country, and many of these regulations are outdated, piecemealed, and ineffective.”

“Not-for-profit organizations are already subject to federal and state oversight that includes regulation of excessive executive compensation and administrative expenses,” said Jim Lytle of the law firm Manatt, Phelps & Phillips who spoke on behalf of a group of 17 nonprofit associations and coalitions, including:

•Association For Community Living
•Black Agency Executives
•Catholic Charities of the Archdiocese of New York
•Catholic Charities Neighborhood Services, Diocese of Brooklyn and Queens
•Coalition of Behavioral Health Agencies
•Family Planning Advocates of New York State
•Federation of Protestant Welfare Agencies
•Hospice and Palliative Care Association of New York State
•Human Services Council of New York
•Long Island Coalition of Behavioral Health Providers
•Mental Health Association of New York City
•Mental Health Association of Westchester
•New York State Coalition for Children’s Mental Health Services
•New York State Council for Community Behavioral Healthcare
•Supportive Housing Network of New York
•UJA-Federation of New York
•United Neighborhood Houses of New York

Lytle noted that “the Attorney General’s Office exercises comprehensive regulatory authority to supervise the operation of the state’s not-for-profit corporations, including the reasonableness of compensation. The Attorney General can hold officers and directors of NFP Corporations fully accountable for their actions, including the right to remove directors who authorize or acquiesce in payments or practices that are deemed inappropriate or excessive.”

He went on to highlight that the IRS requires detailed disclosure of executive compensation and that substantial tax penalties can be levied on executives that receive excessive compensation. “In reviewing whether the compensation is reasonable, the IRS reviews what compensation is received for similar services by similar organizations (whether for- or not-for-profit) and under similar circumstances. To get the benefit of the doubt, entities must demonstrate that the board actually established and followed a reasonable compensation policy, and that the board actually reviewed comparable compensation data and comparability information to make a reasonable decision,” said Lytle.

Michael Cooney, an attorney with law firm of Nixon Peabody concurred. “I would urge the legislature to evaluate and incorporate existing processes and structures that are already in place. What is needed is a better understanding of this structure and enforcement mechanisms,” he said.

Give Me a Number!

Nonprofit sector representatives criticized the Governor’s proposal for blanket caps on reimbursement for executive compensation and administrative expense as a blunt instrument which is ill-suited to the complexity of the state’s nonprofit sector. “Taking a ‘one-size fits all’ approach to addressing the compensation and administrative spending practices of tens of thousands of not-for-profit organizations will not effectively curb excessive compensation by the handful of offending entities and will do harm to an already fragile New York State not-for-profit infrastructure,” said Lytle.

Despite these concerns, Committee Members pressed witnesses for their views regarding the proposed $199,000 salary cap or appropriate alternatives. “What is reasonable?” State Senator Daniel Squadron asked repeatedly.

Lytle and Cooney declined to give any number, citing the need for case-by-case assessments of the position, its responsibilities and complexity, issues of size and scope, and comparable pay levels in the competitive marketplace in which an agency must recruit leadership.

NYCON’s Doug Sauer, on the other hand, offered a “personal” opinion. “If somebody is making $1 million, I think you really need to look at it,” he said, and then added. “If someone is making $500,000, I think you should look at it.”


Costs of Compliance

Witnesses argued that the Governor’s Executive Order would establish an entirely new and unnecessary set of bureaucratic burdens on nonprofits. They noted that multiple State agencies -- DOH, OASAS, OMH, OCFS, etc. --- were being asked to develop their own separate regulations and procedures which would likely to lead to overlapping, conflicting and confusing reporting requirements.

“Every new regulation, every new reporting requirement, and every new unfunded mandate, comes with a cost,” said NYCON’s Doug Sauer. He noted that the Governor’s Task Force on Nonprofit Entities – appointed last year to explore the executive compensation issue – was already imposing unnecessary compliance costs on both nonprofit agencies and the state itself. The Task Force reportedly has demanded detailed staff salary and compensation data from hundreds of nonprofits with state contracts. “This information already is readily available,” said Sauer. “How much has the State spent to find out what is already out there? How much has it cost nonprofits to fill out these forms?”

Several witnesses – as well as State Senator Reuben Diaz – questioned why the Task Force had yet to offer any report on its findings -- even as an Executive Order was already establishing new State policy.

“No analysis of the collected data has been released nor have there been any recommendations or other reports from the Task Force,” said Lytle. “It may be appropriate, at a minimum, to review the results of that review before implementing such a sweeping across-the-board approach to a problem that we sincerely believe is much more limited and much better addressed by targeting the actual wrongdoers before impugning the practices of the whole charitable sector.”

Committee Chair Carl Marcellino, himself a member of the Task Force, may have unintentionally underlined the nonprofit sector’s concerns when he responded that “the Task Force is still receiving data. What slowed that down is the volume and the extent of the questionnaire. It was quite extensive.”


Alternatives

Nonprofit representatives offered some alternatives to the Governor’s Executive Order.

“Rather than rely on State-issued governmental guidelines or across the board caps that dictate salary and administrative expense caps for thousands of organizations, we recommend that the Legislature enact tough new requirements that will hold the contracting organizations themselves accountable for the discharge of their obligations in setting reasonable compensation and limiting administrative costs,” said Lytle on behalf of the 17 nonprofit associations and coalitions.

They proposed the following specific steps:

•Require that not-for-profit boards apply the Internal Revenue Code's reasonable compensation standards for tax-exempt organizations.
•Authorize the Attorney General to investigate compliance with, and enforce these requirements by directing the corporation to produce evidence of its compliance with these standards, upon request.
•Provide sufficient resources to the Attorney General’s Charities Bureau to investigate and to enforce these requirements, through reasonable fees if necessary.
•Require State agencies to adopt reimbursement and contracting practices that ensure that administrative expenses remain within appropriate levels, taking into account the specific services being rendered and other factors that may dictate the appropriate level of “overhead.”
•Establish a commission—perhaps building upon the existing Task Force on Not-for-Profit Entities, potentially supplemented with membership from reputable not-for-profit leadership—that could take a careful look at these issues and develop its own proposals.

“The State of New York needs to better coordinate efforts, focus resources, and streamline its attention to the business relationship with the nonprofit sector,” said NYCON’s Doug Sauer. “It is in that spirit that we point to solutions similar to those recently enacted by the State of Connecticut and their decision to hire a cabinet-level appointee whose sole purpose is to help manage the myriad issues related to the State-nonprofit relationship. We point to contracting solutions highlighted by our colleagues from the New York City area submitted testimony before this hearing. And, we point to solutions already proposed by the State Comptroller forthcoming from the Attorney General.”

What’s the Problem?

Throughout the hearing – as well as much of the public debate – a fundamental question remained. Which of two separate problems is the Governor’s proposal intended to address:

•Exorbitant executive salaries in any nonprofits that might represent a “sticker shock” to the public and a blow to their confidence in the sector; or,
•An inappropriate use of State resources when purchasing services.

While much of the moral outrage propelling the Governor’s initiative seems driven by the former, the provisions of the Executive Order seem entirely aimed at the latter.

“If for- and not-for-profit contracting entities that receive a substantial amount of their revenue from non-state sources may be able to supplement compensation over the established levels and exceed the administrative expense limitation with non-state resources, the proposal would unfairly target only contractors that are entirely dependent upon State support,” said James Lytle.

“The proposed system provides exemptions and waivers which we believe will result in exceptions for those organizations whose compensation levels are most likely to “shock the conscience,” said Doug Sauer.

Legislators Get Back Pay! How About You?

The New York Nonprofit Press offered this relevant perspective now that the NYS Budget has been passed:

After finally completing passage of New York State’s FY2010-2011 budget – 125 days late -- New York State legislators have received checks covering back pay averaging $26,500. How about your agency?

According to an article in today’s City Hall, salaries and other monies owed to Assembly Members and State Senators – a total of $7 million – were paid out in full on August 3rd – the day they voted on the final budget bills. Legislators, according to the article, are now catching up on their mortgages and paying off other loans – if not simply dropping the cash into their savings accounts.

By contrast, there are widespread reports that New York State had taken no action to make payments to nonprofit contractors for services provides since April 1st when the new fiscal year began – even when there were existing contracts and, therefore a legal obligation to make payment.

Last week, NYNP reported on several agencies who were already owed as much as $1 million for services provided during this fiscal year. A Division of Budget spokesperson indicated that cash flow problems were standing in the way.

Now that the budget has been passed, when will payments under existing contracts be made to providers? And, how quickly can the state act to process and register new contracts to provide payment for critical services?

Nonprofits have mortgages and loans to pay off too – not to mention the salaries of staff who never stop providing services, budget or no budget.

What’s happening at your agency? Email your comments to editor@nynp.biz.

Advocacy Call for Charitable Deduction Issue

NYCON has added it's voice to those of other nonprofit leaders taking a stand against the proposed change to charitable deductions for high income individuals in New York State.

The proposal would result in a 50% decrease in the deductibility of charitable gifts from higher income donors. Already, earners of $1 million or more can only claim 50% of their contribution as a deduction. This proposal would allow donors earning $10 million or more to claim just 25% of their contribution. NYCON is also concerned that this may potentially be the start of eroding charitable deductions in general.

We are urging our members to learn more about this proposal by reading the following articles by the New York Nonprofit Press, The Daily News, and the Chronicle of Philanthropy.

Then, please join us in adding your voice to the memo of opposition by contacting us via email or calling Doug Sauer, CEO at (800) 515-5012 ext. 103.

Contact NYCON and sign onto the Memo of Opposition.
Contact your Senator. Click here for a searchable database of representatives.

City’s Adopted Budget Cuts $60 Million from Human Services

The NY Nonprofit Press reported that City’s Adopted Budget Cuts $60 Million from Human Services

It is an indication of how bad things are that there appears to be a sense of relief that New York City’s adopted budget for FY2010-2011 features only $60 million or so in cuts to human services. Depending upon who is doing the counting, human services providers had been on the block for as much as $200 million in potential cuts as part of Mayor Bloomberg’s Executive Budget. That feeling of relief is wearing off quickly, however, as providers and advocates begin to take stock of what this budget means for programs and funding streams which have been cut substantially – or in certain cases eliminated entirely.

“While we faced nearly $150 million in cuts to human services, we appreciate that the City Council and Mayor have come together to make some crucial restorations to core services,” says Susan Stamler, Director of Policy and Advocacy for United Neighborhood Houses (UNH). “Unfortunately we will still see over $50 million cut from child care, after school, senior services, adult literacy and mental health services. New Yorkers will feel pain from this budget. The City as well as the State and Federal governments must do more to meet the needs of our communities.”

“The capacity of the not-for-profit human services sector is being really hard hit with multiple rounds of budget cuts at a time when demand for services from the hundreds of thousands of jobless New Yorkers continues to rise,” said Bich Ha Pham, Director of Policy, Advocacy and Research at the Federation of Protestant Welfare Agencies (FPWA). “Many organizations are forced to lay off staff and close entire programs because of the significant reduction of their government contracts.”

The magnitude of funding loss can be seen in a review of budget priorities based on the advocacy of the Human Services Council (HSC) and UNH. These umbrella organizations had requested funding restoration of budget cuts totaling $164 million across a range of human service sectors. Budget negotiations between the Mayor and City Council ultimately restored $103 million, leaving a gaping hole of $60 million, 37% of the restoration advocates had been seeking.

And, this represents only the sector’s top budget priorities – not an all encompassing catalogue of human service budget cuts which would likely raise the total funding loss substantially.

The severity of budget cuts and the relative extent of funding restorations varied markedly by service sector and from one program to another. Here is a brief overview, along with some reactions from providers and advocates.

NY Nonprofit Press Question of the Day: Charity and Banker’s Bonuses

Goldman Sachs is reportedly considering a requirement that its 1,000 highest paid employees donate 4% of their pay to charity each year. The New York Times reports that the bank is about to give out $16.7 billion in bonuses, “bringing average pay to about $595,000 for each employee”.

What do you think? Is this an act of corporate generosity? A PR strategy? Is it the best way for the nation’s wealthy to give back? Or, would increases in taxes on high income individuals be more equitable?

You can share your thoughts by emailing nynpquestionoftheday@nynp.biz.