In his January budget address, Gov. Andrew Cuomo singled out a downstate nonprofit that pays its CEO $2.2 million a year.
Virtually all of the unnamed entity’s income comes from state contracts, which means New York taxpayers are footing the bill for its executive’s seemingly excessive pay.
"How do we justify this spending to the taxpayers of this state? It has to stop. It has to stop this year," Cuomo said.
One month later, the governor issued an order capping executive pay — or more specifically, the amount of state money that can go toward it — at $199,000 for groups that contract with the Department of Health, the Office of Temporary and Disability Assistance, and at least seven other agencies. The order also caps the amount of state funding that can be used for overhead, starting at 25 percent and gradually decreasing to 15 percent by 2015.
While the details are in flux — each of the affected state agencies has until mid-May to come up with rules for implementation — the order represents the first definitive step toward addressing nonprofit compensation abuse, which has been a hot topic in Albany since a few egregious examples came to light last year.
In addition to the order, Cuomo has created a task force to examine nonprofit executive compensation. The group has requested detailed pay information from New York nonprofits and is expected to release a report on its findings.
The state Senate’s Standing Committee on Investigations and Government Operations held a hearing earlier this year on compensation at not-for-profits that receive state funding.
And Attorney General Eric Schneiderman released a plan to reform and revitalize New York’s nonprofit industry, which included a proposal for greater oversight of executive pay.
Officials argue the state has an obligation to prevent wasted tax dollars and pinpoint the extent of the problem. In 2010, for example, there were 1,900 employees earning $100,000 or more at nonprofits contracting with state mental health agencies.
But critics counter that putting pay limits into practice is problematic.
Doug Sauer, CEO of the New York Council of Nonprofits Inc., said the governor’s order lacks clarity.
Each of the affected state agencies will have its own rules as well as the ability to issue waivers to contractors. There are also questions about whether the order applies to all executive officers or just CEOs, and how compliance will be tracked when contractors deal with more than one agency.
Sauer believes the end result will be confusion for nonprofits as well as additional compliance costs. And he stressed the order won’t crack down on excessive compensation because contractors with multiple revenue sources can use other funds to pay seven-figure salaries.
"It’s more accountability and more administration to prove that you didn’t do something wrong," Sauer said. "This order won’t deal with excessive salaries and it will cost all the nonprofits more money, and the vast majority don’t have excessive salaries."
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Michael Clark, executive director of the Nonprofit Coordinating Committee of New York Inc., suggested the Internal Revenue Service’s guidance on setting nonprofit compensation is sufficient.
The IRS, which grants nonprofits their tax-exempt status, requires annual reporting of financial information, including pay. The IRS doesn’t have a formula to figure out what’s excessive, but it does look for board policies and procedures for setting compensation, that pay decisions are documented, there are no conflicts of interest, and that comparable salary data is taken into consideration.
"Our preference is that we stick with that approach," Clark said, adding new rules may do more harm than good.
"There are a lot of amateurs poking around at something that has for 50 years been the subject of intense study."
David L. Thompson, vice president of public policy for the National Council of Nonprofits in Washington, agreed. He said the law, and others like it passed in Florida and New Jersey, are misguided and counterproductive.
Not only is there no profit baked into most fee-for-service nonprofit contracts, according to Thompson, but state Medicaid reimbursements often don’t cover the full cost of services.
"Why in the world would you cap salaries of people who are saving government money?" he asked.
At Fort Hudson Health Center in Fort Edward, which contracts with the Department of Health to provide senior care services, officials have been watching the debate closely.
On the overhead limits, CEO Andrew Cruikshank noted many costs are outside the organization’s control, such as mandated insurance and liability coverage. He does not agree with pay caps either but said Fort Hudson doesn’t rely entirely on state contracts to cover his salary.
Cruikshank earned about $250,000 in 2010. According to Cuomo’s order, no more than $199,000 can come from state funding.
"In my opinion, it demonstrates a limited understanding of how complex the nonprofit organizations are," Cruikshank said of the caps. "I don’t know how one comes up with a standard figure that should apply to all not-for-profits."
The full impact of the order won’t be known until details are released, possibly next month. In the meantime, the governor’s office has declined to address industry concerns.
When contacted by The Post-Star, the governor’s office would not answer specific questions about the order, saying only that the specific standards and procedures are currently being developed by the agencies.