On July 1, 2013, New York State Governor Cuomo's Executive Order #38, designed to "prevent public funds from being diverted to excessive compensation and unnecessary administrative costs, and ... ensure that taxpayer dollars are being used to help New Yorkers in need," was implemented. EO #38 now puts limits on reimbursements for administrative costs and executive compensation that come from state-provided funds.
There are many details, but the following are some general highlights:
- Limit on administrative costs – at least 75% of the state financial assistance or state-authorized payments to a provider must be used for direct care or services, with the percentage increasing by 5% each year until 2015, when it will remain at 85%.
- Limit on executive compensation – state funds cannot be used for annual compensation of more than $199,000; each state agency can “adjust this figure annually based on appropriate factors” but cannot exceed Level I of the federal government's Rates of Basic Pay for the Executive Schedule (currently $199,700).
- Alternative funding sources can be used to pay an executive more than $199,000, but the additional amount must be justified by:
- Providing evidence that the pay level is at the 75th percentile or less of compensation according to a compensation survey “identified, provided, or recognized by the applicable State funding source(s)”, and
- Setting compensation based on appropriate comparable data and approval by the board (or equivalent body) that includes two independent members.
A new website offers detailed information to providers receiving state funds and state-authorized payments. It also includes the information and forms giving providers the opportunity to apply for a waiver.
Steps for Nonprofits
The website provides FAQs and also detailed worksheets for organizations that will help nonprofits work through the process to determine:
- If the organization is covered,
- The amount of state or state-authorized funds received by the organization,
- The amount of administrative and program services expenses, and
- Executive compensation (using a NYS definition) for each potentially covered executive.
The 149-page guidance document will also be required reading.
The documentation required by New York State is similar to what the IRS requires for salary determination, obviously what nonprofits should be doing already. In general, executive compensation from all sources of revenue may exceed $199,000 if the pay is below the 75th percentile of comparables AND was approved by the governing body, with certain requirements met (see pages 40-44).
Although the NYS guidance lists 17 factors of comparability that might be considered relevant when choosing comparative data, the top factors include pay from organizations similar in services, in size, and in geographic location. It also states that, even if the definition of executive compensation in the surveyed organizations does not necessarily reflect the definition used in the regulation, the data would still be acceptable for the purpose of comparability.
ERI’s Nonprofit Comparables Assessor, already used by the IRS and NYS’s Charity Bureau, allows for the selection of type of organization, size, and geographic location as the criteria for choosing organizations to include in the analysis and calculates the 75th percentile as a part of the analysis. Thus, the Nonprofit Comparables Assessor can easily provide what is needed for the required justification. Check it out at www.erieri.com.
And stay tuned for clarification as the implementation of EO #38 begins in NYS!