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Nonprofit CEOs Face Pay Limits In July

New $199G Cap Targets Health, Human Services

By Cara Matthews Journal News April 7, 2013

After learning that two top executives at a ���������� City nonprofit that serves the developmentally disabled earned nearly $1 million each and got other benefits, Gov. Andrew Cuomo 15 months ago issued an executive order limiting executive salaries of organizations that contract with one or more of 13 state agencies to $199,000 a year.

The order, which also restricts administrative spending, directed the departments to issue regulations within three months. Proposed regulations came out after 90 days had elapsed and were to have taken effect Jan. 1 of this year. Due to the issue’s complexity and questions and criticism from the nonprofit sector, they were revised and the implementation date was moved to April 1. Additional changes were published in March, and the start date is now scheduled for July 1, nearly 18 months after Cuomo’s executive order.

“Our priority for implementing a cap on providers’ executive compensation is getting the regulations done right, and responding to thoughtful input we have received from the provider community,” Cuomo spokesman Matthew Wing said in an email. “The final regulations will not only protect taxpayers against abuse, but also provide critical ‘rules of the road’ for providers to follow to help them restrain administrative costs and executive compensation.”

The regulations apply to groups that provide services on behalf of the state, largely in the health and human-services sectors. Most contractors are nonprofit, but the rules also apply to for-profits. It’s unclear how many organizations they will apply to, but the state contracts with tens of thousands of them.

No more than $199,000 of state funds or state-authorized payments can be used for an executive’s compensation. Organizations that pay one or more executives above $199,000 a year (from any source) must apply for waivers. They could face penalties or a loss of compensation if they are denied a waiver.

The state agency that contracts with the provider and the governor’s budget department will identify before July 1 publicly available, acceptable salary surveys. They also will allow self-produced surveys to be considered in the review process. Providers said they are anxious for the state to release the information because a lot hinges on it.

You’re left very much in the dark as to whether the salary schedules in any given organization are found to be acceptable or not,” said attorney James Lytle, a partner in Manatt, Phelps & Phillips in Albany, which represents some nonprofit health-care and human-services groups.

Daniel Lukens, executive director of the nonprofit Camp Venture Inc. in Nanuet, said he’s not concerned about implementing the new regulations. He makes $135,000 a year and has a staff of roughly 600 and an annual budget of about $33 million. It’s “pretty generous compensation,” although salary reports often show he’s in the bottom quartile of pay for agencies his size, he said. The agency serves people with developmental disabilities.

Other nonprofit directors agreed. “I’m in the not-for-profit sector because I care about people, not because I want to make a million dollars,” said Jill Warner, CEO of Jawonio, a $40 million agency in New City that serves the developmentally disabled. She made $223,194 in 2010, the latest tax year available. Her other compensation, such as health insurance, totaled $78,303.

Warner said her salary would comply with the guidelines established by the new regulations. It’s important to take into account the size, budget and complexity of the organization when evaluating compensation, she said.

Jawonio was singled out in a February congressional report about Medicaid “waste” in ����������, including what were described as “excessive salaries.” Former CEO Paul Tendler’s total compensation was $545,783 in 2008 and $278,049 in 2010 – the year after he retired. Tendler, who has since died, collected about $500,000 in deferred compensation those years, so it was reported as income.

Philip and Joel Levy, now-former top executives at the Young Adult Institute in ���������� City, which serves the developmentally disabled, were “outliers” and not the norm for the nonprofit world, Warner and others said.

A published report in 2011 described the lavish salaries and lifestyles of the brothers. The Medicaid-funded organization paid Joel Levy more than $1 million and Philip Levy nearly $1 million in 2009. Joel Levy retired as chief executive in June 2011 and his brother, a part-time consultant since resigning as chief executive in 2009, also left that month, the report said.

Young Adult Institute spokeswoman Lynn Berman said senior executives’ salaries have been cut approximately 30 percent since Philip Levy left and have been frozen.

Richard Swierat, executive director of Westchester ARC, said top pay at the organization is “close but not on top of that salary requirement.” The group’s 2011 tax return said he made $189,476, plus $48,209 in other compensation. Board members evaluate him annually based on the market, his work and other factors, he said.

“We didn’t need the governor’s order to tell us to do that. That’s proper practice,” said Swierat, whose group has a $54 million budget and 800 employees.

Jim Purcell, CEO of the Council of Family and Child Caring Agencies, said he did not think providers would have a hard time meeting the administrative spending limits. A Baruch College study of the council’s agencies found that average administrative costs for ���������� City agencies were about 11 percent between 2006 and 2010. They were a little higher for upstate agencies, which tend to be smaller.

“It’s probably harder for smaller agencies to have a low percentage because there are just some fixed costs,” he said.

Lytle said he’s not convinced the regulations are the right policy to address the issue of excess compensation. The state should deal with organizations that pay excessive salaries and have high administrative costs on a case-by-case basis, he said. “If there are people whose salaries cannot be justified, I believe currently the (state) attorney general and the Charities Bureau that he oversees have the authority to do something about it,” he said.

The Attorney General’s Office doesn’t place limits on compensation, but it could challenge pay under state nonprofit law.

Young Adult Institute spokeswoman Lynn Berman said senior executives’ salaries have been cut approximately 30 percent since Philip Levy left and have been frozen.

Richard Swierat, executive director of Westchester ARC, said top pay at the organization is “close but not on top of that salary requirement.” The group’s 2011 tax return said he made $189,476, plus $48,209 in other compensation. Board members evaluate him annually based on the market, his work and other factors, he said.

“We didn’t need the governor’s order to tell us to do that. That’s proper practice,” said Swierat, whose group has a $54 million budget and 800 employees.

Lytle said he’s not convinced the regulations are the right policy to address the issue of excess compensation. The state should deal with organizations that pay excessive salaries and have high administrative costs on a case-by-case basis, he said. “If there are people whose salaries cannot be justified, I believe currently the (state) attorney general and the Charities Bureau that he oversees have the authority to do something about it,” he said.

The Attorney General’s Office doesn’t place limits on compensation, but it could challenge pay under state nonprofit law.

Organizations file 990 tax forms with the Internal Revenue Service that are public. The IRS requires that executive compensation be “reasonable.”

State agencies will spend lot of money to oversee the regulations and service providers will spend a lot of money to comply, said Doug Sauer, executive director of the Albany-based ���������� Council of Nonprofits. Legal firms, accounting companies and the salary-surveying industry “are going to make a mint,” he said.

The order is “somewhat discriminatory” because it largely falls on agencies that contract with health and human-services organizations, and not contractors that work in economic development or transportation. For example, he said. it doesn’t address some of the high salaries among state employees, he added.

“I don’t think it’s going to solve the problem. I think it will have the state sanctioning what the public will see as excessive pay,” Sauer said, referring to state-approved waivers.

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