ALBANY - Proposed regulations to limit spending for administrative costs and executive compensation at state-funded not-for-profit and for-profit service providers were released on Wednesday.

The proposed regulations are designed to implement Executive Order 38, issued by Governor Cuomo in January 2012 to limit excessive compensation and administrative expenses at service providers that receive state funds or state-authorized payments of federal funds.

When unveiling the 2012-2013 Executive Budget, Governor Cuomo highlighted cases of extreme compensation levels at not-for-profits that receive millions in taxpayer dollars. In one case, a provider receiving $19 million annually in public funds – 99% of its annual budget – had $3 million in administrative costs and paid its CEO more than $2.2 million in addition to $1 million in shareholder options.

"These regulations are designed to ensure that New York taxpayers are protected and the public's money is spent efficiently and effectively," Governor Andrew Cuomo said. "Our providers of services in New York State are the finest in the nation. To ensure public confidence in those hard-working providers that play by the rules, these regulations will allow the state government to identify and stop the few providers that pocket taxpayer dollars rather than use them to serve the public.”

The proposed regulations cover providers that receive more than $500,000 in state support each year and receive at least 30% of their annual funding from the state.

• Executive Compensation:  The proposed regulations block providers from spending more than $199,000 in state funds for the compensation of an executive. If a provider chooses to pay an executive more than $199,000 from other sources, the provider must keep compensation below the top 25 percent in the field, as determined by a compensation survey identified or recognized by the applicable state agency.
• Administrative Expenses:  The proposed regulations require that at least 75% of a provider’s operating expenses paid for with state funds are for program services rather than administrative costs. This percentage will increase by 5% each year until it reaches 85% in 2015. Capital expenses are not affected by this restriction. Waivers are available in certain circumstances.
• Reporting: The proposed regulations require providers to report annually the public funds it has received, the compensation of its executives and highest-paid employees, and its administrative expenses. Providers can file reports electronically using a simple, state-wide form, and they will not need to report to multiple agencies. This reporting requirement has been designed to avoid duplication with existing reporting requirements with which providers already must comply.
• Enforcement:  The regulations proposed include a process for providers to apply for a waiver to restrictions on executive compensation and administrative expenses. In addition, the proposed regulations provide for an administrative review process in cases where a provider appears to be out of compliance. The review process will provide extensive opportunities for providers to be heard and to correct any non-compliance over a period of at least 6 months prior to any penalties or actions being taken against them. If a violation is ultimately found and corrective action not taken by the provider, the proposed regulations include several potential actions, including redirecting the funding or imposing penalties.