Public Hearing to Examine Executive Compensation at Not-For-Profit Organizations Receiving State Funding and the Actions Needed to Prevent State Tax Dollars from Being Wasted on Excessive Salaries

Health Services; 17 NYS Council for Community Behavioral

Healthcare; 18 Supportive Housing Network of New York;

UJA Federation of New York; 19 United Neighborhood Houses of New York 20

Jayne Cammisa 122 127 21 Registered Nurse, Westchester County

Health Care Corp.; 22 NYS Nurses Association Union

Council Officer 23 Christine LaPerche 127

Nursing Representative 24 New York State Nurses Association 25 ---oOo--- 1 SENATOR MARCELLINO: Good morning. 2 Can everybody hear? 3 Can you hear me in the back? 4 UNIDENTIFIED SPEAKER: Yes. 5 SENATOR MARCELLINO: Okay, that's fine. 6 My name is Senator Carl Marcellino. I am the 7 Chair of the Committee on Investigations. 8 We welcome you to the hearing on executive 9 compensation. 10 Joined with -- joining with me today are my 11 colleagues, Senator Squadron, who is a ranking 12 member; Senator Ruben Diaz; and, Senator Lee Zeldin. 13 We are here to discuss the issue of executive 14 compensation for not-for-profit organizations 15 receiving State funding, and the actions that might 16 be needed to prevent any State tax dollars from 17 being, we put in quotes the word, "wasted" on 18 excessive salaries. 19 We've all seen stories in the media regarding 20 certain groups, where the salaries and compensation 21 for executives and their families seem to outstrip 22 the amount of money that's in their budget, but 23 being used by -- and they're spending, basically, 24 State tax dollars doing it. 25 So, we want to make sure that the tax dollars 1 go towards the function for which they were 2 designed; and that is, to provide a service to the 3 public, to provide help to those who are in need, 4 and not to pay off school loans, or the family 5 members of some executives in various organizations, 6 as was reported recently in "The New York Times," in 7 a story. 8 So, we're just here to ask some questions. 9 Preconceived notions, we don't have. 10 We are looking for advice from you. 11 We have some speakers who have volunteered to 12 come in and testify, and I appreciate that. 13 That's good. 14 SENATOR SQUADRON: You're joined by your 15 echo. 16 SENATOR MARCELLINO: My echo has joined me. 17 My wife always says I have an alter ego. 18 [Laughter.] 19 SENATOR MARCELLINO: I'll keep talking until 20 that echo disappears, Mr. Tech? 21 Okay. 22 We have testimony that has been submitted by 23 organizations who are not here today, but they did 24 submit written testimony; one of which is the 25 New York State Rehabilitation Association, by their 1 CEO, Jeff Wise. 2 We have testimony submitted by -- on behalf 3 of the following organizations: 4 The Human Services Council of New York City; 5 The Lawyers Alliance; 6 Not-For-Profit Coordinating Committee of 7 New York; 8 The UJA Federation of New York; 9 And, The United Way of New York. 10 And, there was one other... 11 A group, submitted by Dan Luckens, 12 executive director of Camp Venture, Incorporated, 13 which is a not-for-profit organization serving 14 adults and children with developmental disabilities. 15 This testimony will go into the record and be 16 part of the final report of the Committee. 17 Our first speaker for today -- and each 18 speaker has been asked to limit their time to about 19 five minutes, to read, or summarize, their written 20 statement; and, we thank them in advance for those 21 who have submitted their testimony in advance, and 22 then standing for questions and answers. 23 The first speaker will be Michael Cooney, 24 partner of Nixon Peabody, LLP. 25 Mr. Cooney. 1 MICHAEL COONEY: Good morning, Senators. 2 SENATOR MARCELLINO: Good morning. 3 MICHAEL COONEY: It's a pleasure to be here 4 today, and I appreciate the opportunity, especially 5 after the exciting win last night. 6 It's good be a New Yorker. 7 My name is Mike Cooney. I'm a partner with 8 the law firm of Nixon Peabody, LLP, and the head of 9 its higher education and tax-exempt organizations 10 practice. 11 My work concentrates on the affairs of 12 nonprofit and tax-exempt organizations, their donors 13 and supporters. 14 And, I've had the privilege, not only of 15 doing this work with the organizations, but serving 16 as well on a number of nonprofit boards. 17 I've also have recently had the honor of 18 serving on Attorney General Eric Schneiderman's 19 Leadership Committee for Nonprofit Revitalization. 20 As one who strongly believes in the value of 21 the nonprofit sector to the people of state of 22 New York, I urge the members of your Committee to 23 evaluate and incorporate in your decision-making the 24 existing processes and structures intended to ensure 25 the fidelity of nonprofit executive compensation to 1 mission and performance. 2 In my personal experience, the vast majority 3 of nonprofit executives are indeed undercompensated 4 for the value that they bring to their organizations 5 and the communities that they serve. 6 Importantly, there is already a legal 7 structure in place, in practices, to assure the 8 reasonableness of their compensation. 9 What is needed in the state, in my personal 10 opinion, is a better understanding of this 11 structure, and vigorous enforcement of the laws that 12 already exist. 13 At the time of this writing, as you well 14 know, the Governor's promulgated an executive order, 15 eliminating the amount of State funding to the first 16 $199,000 of compensation to provider executives. 17 The definitions of "compensation" and 18 "executive" have been left to rule-making authority 19 of -- I believe it's at least nine different State 20 agencies. 21 The basis for the $199,000 figure is somewhat 22 unclear, and the State budget contains similar 23 limitations as conditions of funding. 24 The people of the state of New York and its 25 nonprofit providers deserve better; deserve a better 1 system. 2 And through legislative action, it would be 3 possible to bring greater certainty and impact to 4 the expenditure of those State funds. 5 New York law already imposes on nonprofit 6 corporate governing boards the responsibility to 7 assure that executive compensation is reasonable and 8 commensurate with the services performed. 9 New York law generally provides that officer 10 salaries must be fixed by a majority of the entity's 11 entire governing board. 12 Loans to nonprofit executives are, generally 13 speaking, prohibited. 14 And most importantly, as was demonstrated in 15 the case of Adelphi University back in 2007, the 16 State has the power to remove fiduciaries of 17 nonprofits for, among other things, approving 18 excessive compensation. 19 Currently, though, State law does not 20 delineate procedures to ensure compliance with these 21 requirements. But, those organizations that are 22 public charities, under Internal Revenue Code, 23 Section 501(c)(3), are already familiar with a 24 decade-old regime that arises under Code 25 Section 4958, which establishes reasonable 1 compensation. 2 That statute sets forth a process, which, if 3 used, creates a rebuttable presumption that the 4 compensation approved is reasonable. 5 That rebuttable presumption of reasonableness 6 has three core requirements, rather straightforward, 7 that create a reasonable and effective rubric for 8 setting executive comp. 9 Under the first, a group of board 10 fiduciaries, independent of the individuals who are 11 being compensated, is made responsible for dealing 12 with the issue of setting comp. 13 Commonly, this is done through a delegation 14 to a compensation committee, especially charged by 15 the board with the responsibility for monitoring and 16 overseeing the process. 17 The process is done with access to all 18 relevant financial and performance information, and 19 can be very complete and comprehensive. 20 The fiduciaries work under a compensation 21 policy, declaring that all compensation of the 22 organization must be reasonable, and setting the 23 percentiles in which the compensation arises. 24 The second prong looks to comparables, 25 because, even if you have a very independent and 1 thoughtful, motivated fiduciary, they need good 2 information. 3 That process requires the individuals of, 4 say, the compensation committee, to look at 5 comparable positions at comparable organizations for 6 levels of pay. 7 This information is already available because 8 of IRS reporting on Form 990. It's available 9 through the attorney general's website. 10 My kids can get to the information on 11 guidestar.org; although, I will admit their ability 12 to read the information is not as strong as one 13 would need to have. 14 The bottom line is: Through that process, or 15 even hiring compensation consultants independent of 16 the management of the organization, there is the 17 ability to get good, effective information, provided 18 under penalties of perjury on the information 19 return, in order to benchmark the executive comp for 20 your particular organization. 21 Finally, the third prong of the test under 22 the IRS rules, is that all those committee 23 deliberations need to be set forth in writing. 24 And, we work with our clients quite a bit, to 25 make sure that all of that process -- it's easy 1 enough to use a template -- is properly set forth, 2 that the absence of conflicts are noted, that those 3 comparables are set forth and attached; so, that, in 4 one place, an organization has somewhere to go to 5 look at the complete review of the executive's comp, 6 and, why, for this executive, at this time, and this 7 organization, it's reasonable. 8 With respect to transparency, I want to 9 emphasize that these compensation levels are not 10 hidden from public view, as one might suspect in the 11 various news reports. 12 Most charities are required to report, in 13 detail, compensation of board members, officers, key 14 employees, and others, on that IRS Form 990, which, 15 as I mentioned, is also incorporated in the filings 16 with the New York State Attorney General Charities 17 Bureau. 18 So, therefore, State regulators and the 19 public currently have ready access to information 20 for many of these entities. 21 With respect to enforcement, all of these 22 approval and reporting mechanisms are of little 23 value if the State fails to pursue a consistent and 24 vigorous enforcement path. 25 The Governor's creation of a task force in 1 August, this past year, occurred in the context of 2 serious questions about the million-dollar salaries 3 and benefits paid to two brothers running a 4 nonprofit. 5 Concerns about high levels of compensation at 6 that organization, however, were already well known. 7 Indeed, it appears in the press reports, that there 8 was already a corporate-integrity agreement in 9 place, with requirements for periodic reports and 10 compliance. 11 Why those compensation practices were allowed 12 to continue is a question, not only for your 13 Committee, but for all the right-minded nonprofits 14 and their boards all across the state. 15 I would simply ask that the exceptions not 16 prove the rule. 17 Finally, in conclusion: I ask the Committee, 18 respectfully, to consider the proposals emanating 19 from the nonprofit sector. Much of this work has 20 already been done through our structures already in 21 place. 22 New York law should supplement and strengthen 23 those existing federal requirements without imposing 24 significant new costs and burdens which don't inure 25 to the benefit of the people. 1 The nonprofit sector in New York State 2 understands the importance of demonstrating the 3 appropriate use of these scarce and, in these times, 4 precious resources entrusted to them. 5 The imposition of blanket rules or 6 limitations on executive compensation would do more 7 harm to the process than help it, to the detriment 8 of all New Yorkers. 9 And with that, I would like to thank you for 10 the opportunity to hear me out on this issue, and 11 greatly appreciate your having a hearing on it. 12 Thank you. 13 SENATOR MARCELLINO: Again, we appreciate you 14 coming, and we thank you very much for your time and 15 your testimony. 16 Just to make some clarifications, and then 17 I'll let my colleagues make statements, if they 18 would like. 19 Just to point out, that, in 2010, the 20 Division of Budget found that, at not-for-profit 21 organizations under contract with the State Mental 22 Hygiene agencies, there were 1,926 employees with 23 salaries greater than $100,000 a year. 24 That's -- their salaries totaled 25 324.6 million, in total. 1 The majority -- we all understand, and we 2 make the statement declaratively: The majority of 3 the over 140,000 not-for-profits providing services 4 to the State, and to our residents, that are listed 5 with the IRS, are doing a fantastic job. 6 We're not arguing with that. They do a great 7 job; they do a fine job. 8 As always, we are looking for those that are 9 abusive of the system, and we're trying to figure 10 out ways to best curtail the abuses. 11 I think that's what we're looking for. 12 We recognize the service provided by the 13 not-for-profits and the quality of their service; 14 and, as I said, 99.9 percent of the time. 15 It's that .1 percent that causes most of our 16 problems. 17 I found out, when I was teaching school, that 18 the -- 99 percent of the kids in the school were 19 there for an education. It was the 1 percent that 20 drove everybody crazy. 21 And, that's the kind of thing we're dealing 22 with, constantly, in this -- in this state. 23 As far as the $199,000 salary set by the 24 Governor for his limit, in his executive proposal, 25 it is my understanding that that came from, and I 1 could be wrong, but it -- 2 And I don't mean to put words in his mouth. 3 He can do that for himself, quite eloquently. 4 -- but, it was my understanding that the 5 $199,000 was the top pay that any federal person, 6 who was, like, the second in command under a 7 commissioner, could make, at the federal level. 8 And, he chose that as the cut-off point for 9 his proposal. 10 So, that, I think, is where that came from; 11 so, we can bring that to a point. 12 But, now, I would like to turn it over to my 13 colleagues who might want to make some opening 14 statements. 15 Senator Squadron. 16 SENATOR SQUADRON: Thank you very much to the 17 Chair for convening this. 18 I think that, both, from the testimony we've 19 already gotten from the turnout today, this is an 20 issue that absolutely has to be dealt with, as the 21 Chair has said, and is, maybe, a little more 22 complicated than it seems at first. 23 So, the opportunity to really dig into it is 24 deeply appreciated, and, I want to thank the Chair 25 for that. 1 I think that one of the key questions here -- 2 there's -- there are, really, going to be two 3 questions today. 4 And the first one is: Is there a problem? 5 And I think that the news reports, et cetera, 6 have shown that, clearly, there is some sort of 7 problem, but: How big is that problem? And, how do 8 we deal with that? 9 I think the second one, frankly, is: Is the 10 solution really as concerning as all that? 11 And, I think that the Governor deserves a lot 12 of credit for stepping in, in his first year, on 13 this issue, and putting something forward that is 14 going to change the status quo. 15 And I think that what we're seeing today, is 16 the way in which that change is going to have a 17 ripple effect through the nonprofit sector. 18 I think we all agree that the nonprofits in 19 this state serve an extraordinary purpose. 20 In fact, in a time of State budget austerity 21 and State cuts, they serve as critical a function as 22 ever; and, perhaps, more critical than ever. 23 And hamstrung -- to hamstrung our nonprofits, 24 to make it harder for them to serve the people in 25 this state who are in most desperate need of it, 1 would be just an absolute tragedy. 2 To control what happens, and ensure that 3 we're not wasting State dollars, is an absolute 4 imperative. 5 And, so, the ability to really talk through 6 this issue and understand it, as the Governor moves 7 forward on the legislative side, is something that I 8 really appreciate. 9 I do have a question -- just two questions 10 for the current witness, and I'll go right to the -- 11 SENATOR MARCELLINO: Why don't we just hold 12 the questions, and just make statements. And, then, 13 we'll all have a round of questions. 14 SENATOR SQUADRON: Great. 15 SENATOR MARCELLINO: How's that? 16 Ruben? 17 SENATOR DIAZ: No, I'm just glad that you 18 called this meeting, Mr. Chairman; but, also, I'm 19 kind of disappointed, because I don't see that any 20 member of the -- any member of the task force, who 21 are the ones who, also, are supposed to investigate, 22 and provide the Governor with whatever he wanted -- 23 he intended to do. 24 I've been invited, or, I'm here today to 25 be -- to testify. 1 I can ask some questions for them, and I see 2 that none of them are here today. 3 SENATOR MARCELLINO: That isn't their fault. 4 That is the -- this is a Committee hearing, 5 not a task-force hearing. 6 SENATOR DIAZ: Yeah, but -- 7 SENATOR MARCELLINO: The Governor's task 8 force is operating on its own time schedule. 9 I am a member of that task force. I sit on 10 it, so does Assemblyman Englebright, because we 11 chair the two Committees -- the two relevant 12 Committees, in our respective chambers. 13 But, that task force is operating on its own 14 time frame, and is under the leadership of 15 Ben Lawsky, who is the -- 16 SENATOR DIAZ: Excuse me, Mr. Chairman -- 17 SENATOR MARCELLINO: -- the Commissioner of 18 Financial Services. 19 SENATOR DIAZ: Excuse me, I'm talking about 20 the task force that go and inform, composed by 21 Inspector General Biben, Secretary of State 22 Cesar Perales, DRS [sic] Superintendent 23 Benjamin Lawsky, and Medical [sic] Inspector General 24 Gene Cox; that task force -- 25 SENATOR MARCELLINO: That's the same task 1 force I just mentioned, Senator. 2 SENATOR DIAZ: So, are -- 3 SENATOR MARCELLINO: They are operating under 4 Ben Lawsky's leadership, under their own time frame. 5 They're collecting data at the present time, and 6 evaluating stuff, and putting it together, so that 7 we can meet. 8 And, we've had two meetings of that task 9 force. 10 More are scheduled, so that we can understand 11 the data. 12 As I said, there are 140,000 entities that 13 we're collecting information from. 14 SENATOR DIAZ: So, we have not the 15 opportunity of asking the members of the task force 16 questions? 17 SENATOR MARCELLINO: Not today, no. 18 Senator Zeldin. 19 SENATOR ZELDIN: I just want to thank you, 20 Chairman Marcellino, for putting this together. 21 I have some specific questions for 22 Mr. Cooney, and some others. And, I'd really like 23 to get into more of the substantive part of the 24 problem that certainly exists across the state. 25 I want to echo what Senator Squadron just 1 said, in giving kudos to Governor Cuomo, his first 2 year in office, tackling a very complex issue. 3 And, I'm looking forward to the remainder of 4 this hearing. 5 SENATOR MARCELLINO: Thank you. 6 Like I said, we'll just go around. 7 I just have a couple of points. 8 Mr. Cooney, you mentioned in your 9 statement, the term "reasonable"; 10 "New York law imposes on nonprofit corporate 11 governing boards, the responsibility to ensure that 12 executive compensation is, quote/unquote, reasonable 13 and commensurate with the services performed." 14 I -- that's one of my problems, is the 15 definition of -- and I think you mentioned it later 16 on in the statement, but, the definition of 17 "reasonable." 18 Do we have a suggested definition of what is 19 "reasonable," or should it vary from organization to 20 organization? 21 MICHAEL COONEY: My suggestion, Senator, 22 would be to use the existing definitions and the 23 regulations that the IRS has already toiled over for 24 years, and provided us with guidance on the federal 25 tax-exemption side. 1 It is, as you point out, something which can 2 differ from organization to organization, as to how 3 the standard gets applied. 4 But, clearly, in those cases that have been 5 cited in the press, and things that have been talked 6 about, I certainly think that the State has the 7 ability to contest those salaries; to hold those 8 boards responsible, on the basis that, perhaps, 9 amounts paid are not reasonable. 10 SENATOR MARCELLINO: I went through, and I -- 11 the IRS governance of 501(c)(3) organizations. 12 And, I don't see here, and maybe I misread 13 it -- 14 I'm not an attorney, so, you'll have to 15 pardon my handicap. 16 -- but, I don't see here, a specific 17 percentage, or -- it's very general. It seems very 18 broad. It leaves a lot up to the governing boards 19 of each of the entities. 20 And it's been my experience with many of 21 these governing boards, that a lot of the membership 22 is appointed by the CEOs of the organizations 23 themselves. In many way cases, they're just rubber 24 stamps. They don't necessarily have a lot of 25 independence. On paper they do; but, in fact, 1 they're not. 2 So, how do we get past that so that we can 3 make sure that there are some real guidances, so it 4 doesn't have to fall upon a State entity; or the 5 IRS, which is draconian, when they come down on 6 people? 7 MICHAEL COONEY: I would be happy to provide 8 you, Senator, with copies of the relevant language 9 from the IRS regulations, to the extent that it 10 might be helpful to your Committee. 11 With respect to oversight by boards, again, 12 the law contemplates the State relies on independent 13 volunteers as fiduciaries overseeing these 14 organizations. 15 I full-well understand the concern about 16 levels of independence, and the ability of those 17 individuals, for whom I would point out, the cash 18 flows all go in the other directions. 19 You know, we're making contributions. The 20 organizations we work with, we don't get paid by 21 them for board service. 22 But, in that respect as well, you're exactly 23 right; there needs to be more focus brought to the 24 role of the boards, their independence. 25 And, I think, giving them these tools, making 1 them better know, making them, frankly, a state 2 legal standard, would be helpful in that regard. 3 SENATOR MARCELLINO: Thank you. 4 I would appreciate copies of your points that 5 you just offered. 6 Senator Squadron, if you have any questions? 7 SENATOR SQUADRON: Thank you very much. 8 And I thank you very much for testifying 9 today, and sharing your perspective. 10 I get the sense that you agree that we need 11 to be diligent in ensuring that nonprofits are 12 fulfilling their duty, both to taxpayers and to 13 their missions; but, that the Governor's executive 14 order raises some real concerns for you. 15 MICHAEL COONEY: Well, my concern with the 16 executive order, as it stands, is that, in many 17 ways, it's not clear enough. 18 And I understand that each of the State 19 agencies, in 90 days, is supposed to provide 20 guidance to the relevant funded agencies. 21 But, my hope would be that there would be a 22 much broader discussion, with respect to these 23 compensation issues again, because we have many 24 pieces in place that we all could benefit from if 25 they were more widely known and widely used. 1 SENATOR SQUADRON: Right; but, most simply, 2 what do you think of a $199,000 max, across the 3 board, for executive compensation for nonprofits? 4 Does that make sense to you, or not? 5 MICHAEL COONEY: My concern is this: 6 As was noted earlier by the Chair, the whole 7 issue of, what is reasonable in a particular 8 circumstance, is something that any funder -- 9 If it's not the State, it's a community 10 foundation, which I've sat on the board of. Or a 11 United Way. 12 -- any funder needs to make decisions about 13 what it's willing to fund, and what it's not willing 14 to fund. 15 In the case of the state, however, it is 16 sending a tremendously strong message to the 17 nonprofit community, of a hard stop at $199,000, 18 without definitions of, What is "comp?" 19 Is it total compensation, including benefits, 20 including deferred-compensation plans? 21 Who are the executives who are subject to it? 22 It's very hard to react to the standard in 23 the absence of broader information, to see how it 24 might be applied. 25 SENATOR SQUADRON: All right, from your 1 knowledge of the world, what sense do you have; what 2 fraction of nonprofits have, someone, or multiple 3 people, paid more than that? 4 MICHAEL COONEY: Certainly, this is not -- 5 SENATOR SQUADRON: It's easy enough to find 6 on the website, as you said, so I assume that you 7 went through it. 8 MICHAEL COONEY: Certainly, it's not an 9 empirical study in any way, but I would say that the 10 vast majority of the executives working in 11 nonprofits are below that level. 12 SENATOR SQUADRON: So, in what sector are 13 folks above that level? 14 MICHAEL COONEY: Well, I think, in order to 15 ascertain that, you would look, really, at the 16 complexity of the organizations. 17 Certainly, in health care. 18 Certainly, in education. 19 And, in other areas, perhaps, further away. 20 Perhaps, the arts, in some context; where, 21 you have a multi-national organization that works on 22 a multi-national basis, you'll see those levels of 23 complexity, where, in order to attract good people, 24 one has to have some flexibility in order to provide 25 appropriate compensation. 1 SENATOR SQUADRON: Now, those culturals are 2 probably not getting the threshold of State money 3 that's -- 4 MICHAEL COONEY: Precisely right. 5 Although, your question went to nonprofits, 6 generally, so -- 7 SENATOR SQUADRON: So, we're probably talking 8 about the health sector -- within the nonprofit 9 sector, we're probably talking the health subsector? 10 MICHAEL COONEY: That's correct. 11 And I would say -- 12 SENATOR SQUADRON: Any other? 13 MICHAEL COONEY: -- as well, there may be 14 services with respect to mental hygiene. Perhaps 15 those with respect to drug and alcohol. 16 As the organizations get larger, and there's 17 certain economies of scale in larger organizations, 18 not surprisingly, you will see the levels of 19 compensation to the executives rise to some degree. 20 There's more that they need to deal with. 21 SENATOR SQUADRON: And just to be clear: Is 22 the concern about having any cap at all? 23 If it was 499, rather than 199, would you be 24 here today, saying the same -- a similar thing to 25 what you're saying? 1 MICHAEL COONEY: Well, I would be here today, 2 because, a cap, if you will, that's too high is a 3 cap that's meaningless. 4 What it points out is, the need for the 5 discussion about, as the Chairman had raised 6 earlier: What is reasonable? And what should the 7 State be paying for these necessary services? 8 SENATOR SQUADRON: And just a final question, 9 because I know we have a number of other testifiers. 10 What's unreasonable, in your view? 11 MICHAEL COONEY: Unreasonable, as a level of 12 compensation? 13 SENATOR SQUADRON: For example. 14 MICHAEL COONEY: Well, in a particular 15 example, if I were to ascertain whether something 16 was unreasonable for an organization, I would look 17 at the specific position. 18 And, as you get below CEO, these can differ 19 dramatically, with respect to the requirements of 20 the position. 21 What exactly is required of this person? 22 How many hours a week are they putting into 23 that job? 24 What sources -- what resources do they need? 25 And, then, to look at the geographic area 1 they're in, the type of provider that they are, and 2 the comparable levels of comp. 3 SENATOR SQUADRON: Do you have any examples 4 of an unreasonable compensation, that you're aware 5 of, in the state? 6 MICHAEL COONEY: Senator, I was asked this 7 question, I believe it was by "The Wall Street 8 Journal," years ago, when our current governor, I 9 believe, was bringing an action -- I remember an 10 action was being brought against the former head of 11 the New York Stock Exchange, who was getting paid an 12 amount which seemed highly excessive to me. 13 And I was asked whether or not I thought that 14 amount was unreasonable. 15 As I recall, my answer at the time was, that 16 it certainly seemed like a lot of money to me; 17 perhaps, more than he needed to be paid. 18 Interestingly, as I recall, through the court 19 systems, he was vindicated. 20 So, I -- 21 SENATOR SQUADRON: So, somewhere between, 22 199, and 100 million dollars, is the -- we find to 23 be -- 24 MICHAEL COONEY: Well, again, I think it 25 really requires the organization to look very 1 closely, and the State to look very closely, at the 2 organization, and what they're paying for it. 3 SENATOR SQUADRON: Okay, thank you very much. 4 I really appreciate you being here, and 5 helping us untangle this issue. 6 MICHAEL COONEY: It's an honor. 7 SENATOR MARCELLINO: Just for the record, 8 that that attorney general became governor, but it 9 isn't this governor. 10 Senator Zeldin? 11 SENATOR ZELDIN: Mr. Cooney, we haven't met 12 before. 13 I just -- for background, would you mind 14 providing us a little bit of information about some 15 of the not-for-profits you've been affiliated with, 16 just for my own personal -- 17 MICHAEL COONEY: Yeah, I'd be -- actually, 18 I'd be proud to. 19 I've worked for over two decades in my 20 practice, which concentrates on the affairs of 21 nonprofits, and those who love them: donors. 22 I've had the opportunity to work with the 23 largest nonprofits in the state, and, actually, 24 across the country, in health care, education, 25 social services, religious organizations, cultural 1 and arts organizations; all the way down to the 2 Pittsford-Mendon High School Baseball Boosters. 3 So, it's a very wide range of organizations. 4 And, I had the opportunity, as well, to work 5 throughout the state, from the very end of the tip 6 of Long Island, up to Buffalo, and into the 7 North Country, and see the effect that these 8 organizations have on the communities in which they 9 work. 10 SENATOR ZELDIN: Well, what are some of the 11 largest not-for-profits that you've been affiliated 12 with? 13 I'm just trying to get a perspective. 14 MICHAEL COONEY: Sure. 15 Well, I -- on the way here, I just walked 16 past the research foundation of the State University 17 of New York. 18 Here, locally, have the privilege of working 19 with RPI, Rensselaer, and Union. 20 I get to work with the University of 21 Rochester, for example, where my main office has 22 been for years. 23 With The United Ways, with the community 24 foundations. In Buffalo, Rochester, Utica, Albany. 25 And then, as well, with a number of 1 institutions Downstate, in the city, and on the 2 Island, some of the health-care providers; again, 3 community foundations, and such. 4 SENATOR ZELDIN: Now, just earlier, 5 Senator Squadron's last question was asking for, you 6 know, specific examples of abuse. 7 And, I didn't quite under- -- I didn't quite 8 connect, or understand, the answer to his question. 9 I was -- we were out of session, last June. 10 And, as we went through the months of July and 11 August and September, it seemed like, every single 12 day, like, "The New York Post," or "The Daily News," 13 "The Times," there was some new story of some type 14 of abuse in not-for-profits. 15 And, I don't know if -- you know, where 16 they're getting all of this information from, all of 17 a sudden, but, it seems like someone, basically, 18 backed up just a truckload of material for stories. 19 And, you know, it kind of came out of 20 nowhere. 21 So, you know, for me, my intrigue with this 22 particular issue, is, you know, not knowing what I 23 don't know. 24 And that's why Senator Squadron's question 25 was really, you know, so good, because he's asking 1 for, you know, specific examples of stuff that we 2 may not know about. 3 Being that you serve on Attorney -- you 4 served on Attorney General's Schneiderman's panel on 5 this issue, I was just -- I was hoping -- I was 6 going to ask the same exact question, just hoping 7 that you might be able to shed light on -- on some 8 of what we don't know about not-for-profit abuses 9 out there, specific examples. 10 But, if you're ever able to supplement that, 11 I would be -- that's one of the most intriguing 12 things about this issue, for me. 13 MICHAEL COONEY: Well, Senator, I would offer 14 two things. 15 First: It's my understanding, that the 16 report that was provided to the Attorney General 17 from the Leadership Committee, will be published at 18 some point soon. 19 And, I'm sure we'll have a number of good 20 points with respect to the process. The discussions 21 were excellent that we had in that context. 22 One issue, though, I would suggest you might 23 want to consider, and something to take up, and it 24 goes to this issue of reasonableness, is what we in 25 the business, if you will, call the "Lake Wobegon 1 Effect"; meaning, as you well know, in Lake Wobegon, 2 all of the children are above average. 3 When one is setting executive compensation, 4 it's very important to keep in mind, as you're 5 looking at those comparables, that there is a 6 tendency, and I think it's a very human tendency, to 7 assume, that whoever is in the organization you're 8 working with, and you've been supporting so 9 strongly, is got to be above average. 10 Well, you can only imagine, Senator, what 11 happens, if everyone gets pegged at the, 60th or 12 75th percentile, over time -- 13 And I think the IRS has seen some of this. 14 -- you could see a rise in salaries, just 15 because, in fact, people are doing a very good job 16 of benchmarking, but with the expectation that their 17 person is better than everyone else. 18 Is that an epidemic in the industry? I 19 would -- certainly not. 20 But, again, it's one of those very thoughtful 21 considerations that we need to take into account, as 22 we're looking at what's reasonable, and what the 23 appropriate level of compensation is for these 24 individuals. 25 I would say to you, that, in the work that 1 I've done, the executives I worked with have very 2 much welcomed this process; because, frankly, they 3 don't want to be in the position of having to 4 explain their levels of compensation. They're 5 already publicly available on the Form 990. 6 The ability to say, "We had an independent 7 board committee, with comparables, that set this 8 forth, and I'd like to concentrate on the business 9 of the organization, and helping out people," is a 10 much more effective place to have them. 11 SENATOR ZELDIN: What's the most amount of 12 money that you've seen not-for-profits hold on to, 13 as far as cash balances at any given time, in the 14 state? 15 MICHAEL COONEY: Cash -- days on hand, cash 16 available, varies tremendously. 17 SENATOR ZELDIN: I'm looking for the higher 18 end of that picture. 19 I can imagine -- I've seen, in, you know, 20 great not-for-profits on Long Island, unfortunately, 21 their cash balance is pretty close to zero. 22 But I'm really getting at it, you know, what 23 do we see on the other end of that spectrum? 24 MICHAEL COONEY: You know, I -- again, it 25 varies so much, even within industries. 1 But what I would say to you is -- 2 SENATOR ZELDIN: Let's take health care, for 3 example. 4 MICHAEL COONEY: Well, in this current 5 economic state, in -- with levels of being -- 6 reimbursement being what they are, and with the 7 demands being put on the systems, pretty much, every 8 one of them I could think of, is heavily reliant on 9 lines of credit, simply because there's not the 10 available cash that one would expect, and, if you 11 will, in a normal business atmosphere, to be able to 12 pay those ongoing expenses. 13 Access to that credit is hugely important in 14 getting the work of the organization done. 15 SENATOR ZELDIN: Are there organizations -- 16 you know, are there organizations out there that 17 have tens of millions of dollars of, you know, cash 18 balance at any given time? 19 MICHAEL COONEY: Most certainly. 20 I mean, we're blessed in New York State of 21 having organizations with large investment funds. 22 I mean, think of, for example, in the 23 university context. 24 But, for the most part, those assets -- 25 restricted, many of them; some of them, 1 unrestricted -- are invested for a longer term in 2 order to provide an annual cash-flow payout, in 3 order to meet those needs, including executive 4 compensation, I'm sure. 5 SENATOR ZELDIN: I mean, is -- are there 6 organizations that have hundreds of millions of 7 dollars of cash balance at any given time? 8 MICHAEL COONEY: I can't tell you that. 9 I don't know. 10 SENATOR ZELDIN: Okay. 11 My last question, I'm just trying to 12 understand this as well: If you have a 13 not-for-profit, can you -- I mean, at the end of the 14 year, essentially, you're -- the amount of money 15 that you have in revenues and expenses, you know, 16 pretty much, is supposed to equal out towards the 17 end of the year. 18 What kind of -- what kind of experience have 19 you had with seeing the individuals that run 20 not-for-profits; essentially, billing, management 21 consulting fees, from for-profits, at the end of the 22 year, and balancing out at zero? 23 Have you experienced that at all? 24 MICHAEL COONEY: I have not. 25 I have not. 1 To the extent that there is any amount net of 2 costs at the end of the year, more often than not, 3 that's something that has to get folded into the 4 next year; because, again, especially in this 5 environment, that is such a rarity. And, the 6 organization needs to plan for having resources 7 available to meet the needs in the next year. 8 SENATOR ZELDIN: And for sake of time, I'm 9 willing to hand it back over to our Chairman. 10 Thank you, Senator Marcellino. 11 SENATOR MARCELLINO: Thank you. 12 Go right ahead, Senator Diaz. 13 SENATOR DIAZ: Thank you, Mr. President. 14 Mr. Cooney; right? 15 MICHAEL COONEY: Yes. 16 SENATOR DIAZ: Mr. Cooney, did you consider 17 yourself a lobbiest? 18 MICHAEL COONEY: A -- I'm sorry? 19 SENATOR DIAZ: Did you consider yourself a 20 lobbiest? 21 MICHAEL COONEY: A lobbiest? 22 SENATOR DIAZ: Yeah. 23 MICHAEL COONEY: No, sir. 24 SENATOR DIAZ: You're not a lobbiest? 25 MICHAEL COONEY: No. 1 This is the first time I've spoken in front 2 of the legislature on, pretty much, any issue. 3 SENATOR DIAZ: So, your job is to fight for, 4 whom? 5 MICHAEL COONEY: My purpose in being here 6 today, Senator, was simply to make the members of 7 the Committee aware of the fact that we have 8 structures on the federal side in place, that are 9 intended to deal precisely with the sorts of issues 10 that you're grappling with right now. 11 SENATOR DIAZ: You represent Nixon Peabody; 12 right? 13 MICHAEL COONEY: That's correct. I'm a 14 partner with the firm. 15 SENATOR DIAZ: On the firm -- 16 MICHAEL COONEY: I'm not here on behalf of 17 any client, if that's what you're asking. 18 SENATOR DIAZ: I'm asking, because, in -- on 19 August 3rd, the Governor created a task force. 20 Have you been contacted by that -- by the 21 task force? 22 Are you being questioned by the tax force? 23 Your company had been contacted by them? 24 MICHAEL COONEY: No, Senator, I haven't had 25 any contact with members of the task force. 1 SENATOR DIAZ: Did you know of anyone that 2 the task force has contacted? 3 MICHAEL COONEY: Well, I'm aware of the fact 4 that -- that several of our clients, as well as a 5 number of nonprofits throughout state, received a 6 questionnaire from the task force, and responded to 7 it. 8 But, that's been my level of involvement with 9 anything. 10 SENATOR DIAZ: So you don't know what the 11 task-force rules and regulations, and what are they 12 intended to do? 13 SENATOR MARCELLINO: He's not a member of the 14 task force, Senator. 15 SENATOR DIAZ: I understand, obviously. 16 Could you allow me to do my questioning, 17 Mr. -- 18 SENATOR MARCELLINO: I just wanted to clarify 19 that. 20 SENATOR DIAZ: I will get to the point. 21 SENATOR MARCELLINO: Yeah, I hope so. 22 SENATOR DIAZ: But, I -- yeah. Don't put 23 the -- he's a lawyer. He know how to protect 24 himself. 25 Mr. Cooney, see, I'm trying to find out, 1 because, here, the task force, the Governor, in the 2 executive order, Number 38, he issued some directive 3 to the not-for-profits. 4 And one of that directive, was that they not 5 supposed to pay their executive more than $199,000. 6 Are you aware of that? 7 MICHAEL COONEY: Yes. That was the executive 8 order that came out just a few weeks ago. 9 SENATOR DIAZ: And you are saying that is not 10 enough? 11 MICHAEL COONEY: What I'm saying is, that, my 12 suggested approach, with respect to the setting 13 levels of executive compensation; in particular, 14 what the State would reimburse, should take into 15 account a number of these other benefits that are 16 out there -- 17 SENATOR DIAZ: Let me read you something that 18 came in today "New York Post." 19 Mark Lane, the CEO of the Fidelis Care 20 received $1.1 million in salary, plus $864,000 in 21 benefits; 22 Patrick Frawley, the -- another one of the 23 directors of Fidelis, received $587,249 in salary, 24 plus $900,000 in benefits; 25 Anthony Watson, CEO from EmblemHealth, get 1 the compensation package of $8.5 million. 2 They're all getting money from the 3 government. 4 So, when the Governor says, $199,000, no more 5 than that, we are saying, is that good, or that is 6 not enough? -- according to your position. 7 MICHAEL COONEY: From my perspective, if the 8 concern of the State to be sure its dollars are well 9 spent, certainly, a dollar cap is one way of 10 approaching that issue. 11 One might ask, where the cap should be; how 12 the cap should vary; what it should apply to. 13 In fact, you have to ask those if you need to 14 know how to apply the cap. 15 My point is, simply, that there is a host of 16 other information about there, with respect to these 17 compensation levels and practices, that would be a 18 benefit to you to know about, when you're 19 considering the efficacy of a cap, as the best way 20 of making sure that State dollars are well spent. 21 SENATOR DIAZ: Did you know that, also, the 22 order of the Governor, the executive order, also 23 states, that, "Reimbursement with the State 24 financial assistance of the State authorized payment 25 should not be provided for compensation pay, or 1 giving to any [unintelligible]" -- 2 And then he puts -- "to the extent 3 practicable." 4 Meaning, that, the Governor's saying -- and 5 then -- let me read on something else. 6 The Governor says, that, "The commissioner of 7 each agency, however, has discretion to increase 8 this salary, based on appropriate factor, and 9 subject to DOB." 10 So the Governor is saying, too much money 11 paid; but at the same time he's saying, too much 12 money -- it should not be more than $199,000. 13 But at the same time, he's saying: Okay, so 14 I'm going to give all the authority to the 15 commissioners of the agencies, and the commissioners 16 should decide, to increase, or to make it to 199. 17 So, the Governor's been saying: This is 18 final. 19 The Governor's not saying, only $199,000. 20 He's -- he's mentioning the problem, but he's 21 not curing the problem. 22 He's mentioned, this is the problem: They're 23 making too much money. It should be this kind of 24 money. But, however, the authority would be into 25 the commissioner. Well, I'll let the commissioner 1 decide. 2 So is that -- is that -- according to you, is 3 that is -- that would be -- that is solving the 4 problem? 5 Or, just mentioning the problem, but not 6 taking action with the problem? 7 MICHAEL COONEY: Well, I guess, Senator, one 8 point I would make out of that, and the discretion 9 given to the various State agencies, it, obviously, 10 would be of immerse help to the provider 11 organizations in the state, especially if they're 12 receiving funding from more than one State agency, 13 to have the same standards apply, so that they could 14 be properly administered, and things properly 15 accounted for, in this sense: 16 If the definition of "compensation" for one 17 State agency is one thing, and it is something else 18 for another, it creates, obviously, a level of 19 complexity within the organizations and their 20 ability to react to these things. 21 As you know, there were other issues in the 22 executive order that went beyond compensation, where 23 those could be concerns as well. 24 But, there is a strong concern, on behalf of 25 the community, that, certainly, they want to comply 1 with the laws, work within the limits of what's 2 there, but -- but, some level of consistency, and 3 simplicity, in the standards would be tremendously 4 helpful. 5 SENATOR MARCELLINO: Last question, Senator, 6 please. 7 SENATOR DIAZ: All right. 8 This is my problem, and my concern: The area 9 that I represent -- and not only my area -- Black 10 and Hispanic and poor areas throughout the state are 11 losing funding. Community organizations are losing 12 funding. 13 The people are suffering. 14 They have been cut -- their services have 15 been cut. 16 They have cut workfare in Medicaid. They 17 have cut education for children. 18 I mean, we have been -- we are suffering. 19 And, on the other hand, do we have -- people 20 making from the -- from this same money, such high 21 salaries: a million dollars? $8 million? 22 $3 million? -- when my people are suffering? When 23 we don't have services to our community? 24 I mean, the only -- the only problem that I 25 have, I -- I appreciate the Governor is saying, and 1 I need to mention the problem. 2 The only problem that I have, and the 3 Governor, who say: This is it. $199,000, this is 4 it. 5 But the Governor's not saying that. 6 The Govern's saying: It should be it, but I 7 gonna allow the commissioner to decide. 8 So that mean that the commissioner could say: 9 Oh, okay, you can go get paid whatever it is. 10 That's my only problem, and I -- that's what 11 I wanted to talk to the member of the commission, 12 because people are suffering in the state of 13 New York. Services have been cut. 14 And it's a shame, it's embarrassing, that 15 people are making so much money, when poor people 16 are suffering in this area. 17 That's my question. 18 Thank you. 19 SENATOR MARCELLINO: Thank you, Senator. 20 Mr. Cooney, the -- just one point. 21 Should we go in a slightly different 22 direction? 23 The Governor is looking at salaries. 24 And, the Senator is perfectly correct; he's 25 giving commissioners leeway to adjust the number, as 1 they see fit, according to the job that's being 2 done, and according to the hours being put in, as 3 you described before. 4 But, should we go a different way? 5 Should we take a look at the percent of 6 executive compensation, or any compensation, or 7 administrative costs, as being allowed to be used 8 from tax dollars? 9 Should we look at a percentage rather than a 10 specific salary? 11 If your budget is a million dollars, should 12 your administrative costs not exceed 5 percent of 13 that budget? 14 And, is that a direction we should be looking 15 at, or could be looking at, to make it a better 16 plan? 17 MICHAEL COONEY: Well, Senator, I certainly 18 think it is something that you would want to look at 19 in the context of a number of different options. 20 What I would commend you, however -- and, 21 again, this is a slightly different issue from that, 22 with respect to executive compensation -- but, the 23 whole issue of, direct-service costs versus general 24 and administrative costs, and such, those, 25 sometimes, at least in my experience, can be 1 somewhat hard to define, and trying to get a sense 2 of those. 3 If you're speaking about a percentage of, 4 let's say, the five highest-compensated individuals 5 of the organization, as a percentage of total 6 budget, you might find, in some of the very smallest 7 of organizations in the state, that a goodly amount 8 of their costs are compensation for the one or two 9 employees that they may have to conduct their 10 activities. 11 You know, usually, those are not 12 organizations that are contracting with the State to 13 provide services. 14 But, again, it's simply something to be aware 15 of, as you look at those numbers, and see how 16 those -- those things play out. 17 SENATOR MARCELLINO: Thank you, Mr. Cooney. 18 Appreciate your time, and appreciate your 19 testimony. 20 And, if you could submit that other stuff 21 that we talked about earlier? 22 MICHAEL COONEY: Thank you so much. 23 SENATOR MARCELLINO: Thank you, appreciate 24 it. 25 1 The next speaker is Doug Sauer, 2 chief executive officer of the New York Council of 3 Not-For-Profits [sic]. 4 Mr. Sauer. 5 DOUGLAS SAUER: Hello, and thank you for 6 having this hearing, and -- 7 SENATOR MARCELLINO: Move that -- move the 8 microphone a little closer to you, so -- 9 DOUGLAS SAUER: Okay. 10 Hello, and thank you for having this hearing, 11 and inviting our organization, New York Council of 12 Nonprofits, to give testimony. 13 I'm going to try to just summarize. I don't 14 want to repeat some of the points that Michael made. 15 I know some of the other testimony you have 16 will repeat some of these points. A lot of this 17 information is readily available, and there's the 18 IRS rules, et cetera. 19 Our organization represents 30 -- over 20 3,100 community-based nonprofits of all types 21 throughout the state. 22 Our interest is the small- to moderate-sized 23 community-based organization. We don't have members 24 that are educational institutions. We don't have 25 hospitals. It's about community-based 1 organizations. 2 And, I appreciate the statements made at the 3 beginning, that -- about the value of 4 not-for-profits, and the services that are being 5 provided. 6 And, I can tell you that that is not the 7 message that is being relayed out into the public 8 discourse. It's not the message that my members are 9 hearing, the vast majority of whom don't even come 10 close to hitting that $199,000 in executive 11 compensation. 12 They're hearing that there's -- there's 13 hostility towards not-for-profits. That, it's 14 getting harder to do their work. That, the State's 15 business practice is strangling them already. 16 And, now, there's this whole public discourse 17 that, somehow, they're doing something wrong. 18 So -- so, I'm putting a different -- a bit of 19 a different context on this, in terms of, perhaps, 20 some of the collateral damage that's being done. 21 And, perhaps, with, particularly on that 22 administrative-fee issue, what that really means. 23 I should note, our organization -- I've been 24 with our organization 32 years as executive 25 director. 1 We had run the State Board training 2 consortium for ten years, up until it was eliminated 3 just recently; except for, two State agencies 4 continued. 5 It was the only ongoing educational effort to 6 boards of directors on governance and management, 7 including executive compensation. 8 And, right now, that work, by and large, is 9 not continuing in this state. 10 So, part of this is, we would prefer that you 11 educate rather than regulate, and look at it from 12 that perspective. 13 I also have been the past board president -- 14 the immediate past board president of 15 National Council of Nonprofits, as well as, I'm 16 currently treasurer; and I'm aware of what's 17 happening in some of the other states regarding this 18 issue. 19 I'm going to just kind of lay out -- in 20 trying to cut through some of the various 21 activities, and some of the thoughts around here, 22 I'm going to try to lay out some basic premises, and 23 then expound on them. And some of them, Michael 24 already talked about, so I'll try to go light on 25 that. 1 The media always asks me, that: Is there 2 excessive compensation in nonprofits? 3 My definition is, yes, there is. 4 Is there abuse? Yes, there is. It's few and 5 far between. 6 It's very elite situations, in terms of 7 larger organizations, as was being pointed out a 8 little earlier by Senator Diaz. 9 And, in some cases, it can happen with a 10 small organization; where, an organization may have 11 a $200,000 budget, and you see an executive director 12 getting $180,000 of that, and, you see family 13 members on the board of directors. 14 So, there's different ways that excessive 15 compensation occurs. 16 And, I think part of the struggle here is, is 17 that it's hard to just separate, are we talking 18 about excessive compensation, or are we talking 19 about State money? 20 It kind of straddles back and forth, and 21 that's what's partially confusing some of this 22 issue. 23 Are we talking about, is the State buying; or 24 are we talking about excessive compensation from the 25 nonprofit, irrespective whether the State's buying 1 anything from them or not? 2 Secondly, that, it's not a secret, and 3 Michael brought that up, these salaries, and these 4 excessive -- I will define "excessive," as, what is 5 a sticker shock. 6 What shocks your consciousness. What -- it 7 just seems outrageous, in many cases. 8 And I'm coming at it, not from an IRS 9 perspective, but a public's perspective, because 10 charitable not-for-profits exist because the public 11 has confidence that they're doing the right thing, 12 and doing it competently. 13 And I think, in that case, there can be 14 reasonable compensation if they perform. 15 But, it's when people are looking at it, and 16 says: This will affect an organization, that's -- 17 if privately enuring. People are making money, in 18 some kind of -- as if they were a profit-making 19 entity off this corporation, and maybe it has 20 nothing to do with the results that they produce, in 21 the community, and the changes that they make. 22 But as I -- we had given you, just three 23 clicks, you can get salary information off of 24 guidestar. 25 I can give you my salary. 1 We told you what you -- we give you the 2 details, that you can pull it right out. That 3 information is readily available. 4 We have to ask the question, because the 5 information's been readily available: How much 6 money has the State spent, to date, collecting and 7 analyzing this recent survey information? 8 Are we spending hundreds of thousands of 9 dollars doing that survey? 10 Certainly, when we have had been approached 11 by our members who got this survey, saying: This is 12 going take hours and hours of our board and staff to 13 do this. And, it's going to -- we even might need 14 to consult with legal counsel, and pay legal 15 counsel, to help us fill out this survey, in a 16 defensive mode. 17 How much is it costing to find out what's 18 already out there? 19 And -- and, I think, even as a taxpayer, if 20 we're talking about taxpayer dollars, then we should 21 be able to talk about: 22 What is this whole thing costing, and is that 23 going to get the outcome that you're going to do? 24 How much time and effort does it take from 25 nonprofits to use donor money, and other money, to 1 be able to do this survey? 2 Do we need more bureaucracies? 3 And that's -- that's, I think our fear is, 4 we're going to create a bureaucratic process that's 5 going to cost more money, trying to go after, 6 probably, in a broad net, what is, really, an elite 7 few of abuses to go after. 8 And I want to say, and we've had our members 9 say, that: Hey, filling out this survey, and going 10 through all of these hoops, is an administrative 11 expense, that, by the way, the State doesn't pay us 12 to do. 13 And that kind of relays that, most 14 nonprofits, most small nonprofits, are totally 15 burdened by compliance issues and State issues, 16 particularly in this environment, on a day-by-day 17 basis. And those issues cost more money. 18 It's getting so, you don't want to do 19 business with the State of New York anymore; and, 20 particularly, for community-based organizations. 21 They're drowning in doing that. And nobody 22 can go out and raise money, and say: Give us money 23 so you can subsidize the State of New York's 24 administrative costs, and new regulations that 25 they're coming, that we don't have to the capacity 1 to fulfill. 2 Undercompensation is much more of a prevalent 3 and serious issue. 4 And that's -- I think that's where, I think, 5 from our membership's point of view, the attitude 6 is: That's not us. And, now, the public discourse 7 is about us. 8 We don't see a headline that says, you know: 9 25-year-old community-based executive director is 10 making $50,000, and doesn't have benefits. And 11 their program is a great program, either in a 12 boys' club or doing some other settlement houses, or 13 some other program. 14 And, by the way, that should be something 15 that shocks the conscience. That should be 16 something that the State of New York should be 17 concerned about. That is something that the public 18 should be concerned about. 19 So, as we go along these conversations, it's 20 very difficult for the average nonprofit to see that 21 there's a lot of legitimacy behind what's happening 22 here in policy, because: 23 They would rather see the policy being 24 focused on underpayment; 25 They'd rather see that policy being focused 1 on: We can't get a contract in the state of 2 New York, but we're expected to perform services; 3 Or, the State of New York is creating our 4 cash-flow problems, and starting us to go down, as 5 an organization, because payments aren't being made 6 in a timely basis, and we're going have to close our 7 doors of our community center. 8 Those are the burning issues to the average 9 sector. 10 It's not this issue. 11 I did make note, and I think this kind of 12 raises part of the issue, from our perspective: 13 Taxpayers pay for salaries of many State employees 14 and private for-profit sector businesses that are 15 not coming under this scrutiny, and I wonder why. 16 That 2010 salary that was promoted around, 17 that you had -- Mr. Chair, had indicated, has 18 thrown out the issue of six figures. 19 Now we're talking about 199,000. 20 We talked [unintelligible], and what's in the 21 public discourse, is now six figure. 22 People are talking about $100,000, not 23 $199,000. 24 Put things in perspective: 25 In the fiscal year 2010, the Legislature 1 provided 136 employees of salaries over $100,000; or 2 a total salary amount of over 16.5. 3 A review of the executive branch shows that 4 there's 16,000 employees paid over $100,000, where, 5 an annual cost to taxpayers, over 2.3. That's 6 salary, not compensation. 7 The top-ten-paid employees in New York State, 8 there's several that make over a million dollars. 9 The football -- or the basketball coach at 10 University of Binghamton, makes 8 -- $119,000. And 11 he has -- as we sit here today, he has a 12 0-22 record. 13 So, we're not -- what are we focusing on 14 here? 15 Are we just taking one little narrow piece, 16 and say: We're going to go over there? 17 Or, are we talking about, taxpayer dollars, 18 and what we do with taxpayer dollars? 19 What about economic-development 20 organizations, such as Global Foundries? They get a 21 billion dollars. 22 Do we know what their executives are going to 23 be paid? 24 Do we know how they're using state-taxpayer 25 dollars for those salaries? 1 Do we care? 2 I would argue, we should. 3 And if we're going to have a broad view about 4 this, we should look at it broadly. 5 Our point, basically, is not to malign the 6 compensation levels of the public and private 7 sectors, although, I do have to question the coach 8 with a 0-22 record. 9 It's the performance of the nonprofit sector. 10 And, we, as, both, state taxpayers, and as, 11 now, at the State of New York, really rely on 12 nonprofits to be on the ground to do the work, much 13 usually, in a much more cheaper way than public 14 employees can; and, actually, go raise other money 15 to subsidize that work. 16 So where fair, reasonable, competitive 17 compensation is an important ingredient to the 18 equation, excessive compensation is not. It hurts 19 us all as non-for-profit organizations. 20 And, we need state government to support our 21 workforce. 22 Now, when we talked about caps, for the 23 average not-for-profit organizations that gets the 24 average contract with the State of New York, it is 25 by percentages of salary. 1 The salary is known. It's negotiated. 2 In many cases, the State agency will say: 3 We're not going to pay more than 15 percent. We're 4 not going to pay more than 20 percent. 5 Most State contracts pay 10 percent or less 6 overhead, even though they know the overhead costs 7 might be 15 or 18 percent. 8 So, in many cases, we have losing 9 propositions. 10 In many cases, the State of New York already 11 controls salaries of a lot of nonprofits that it 12 does work for. 13 And, I think that needs to be part of this 14 picture. 15 Another perspective, is that charities in 16 New York State, and certainly Michael Cooney can 17 talk about this, we're probably the most regulated 18 in the country. And, we're one of the few states 19 that even have a not-for-profit corporation law. 20 But, unlike not-for-profit businesses -- 21 we're very much like not-for-profit businesses. 22 Every single new regulation, every new reporting 23 requirement, every new unfunded mandate, costs 24 money. 25 And -- and what we're seeing, is, more 1 regulations, more requirements, more mandates, to be 2 able to perform a service under a contract with the 3 State of New York, and then the State of New York 4 won't pay for it; which means, we have to go out, 5 either, not provide that service, which means 6 there's not so much of an interest in what the 7 outcome might be, or, we got to go raise money from 8 donors to pay for these mandates. 9 And -- and it's going to hamper 10 not-for-profit -- it does hamper, right now, many 11 not-for-profits from being in -- as high performing 12 as they are. Whether it's compensation or it's just 13 compliance regulations, we're constantly getting 14 overregulated. 15 And I have to say, from my perspective, I'm 16 looking at this, and I'm seeing a whole nother 17 bureaucracy, a whole nother set of regulations, 18 being established. 19 It's going to apply, not to the 20 million-dollar executives. It's going to apply to 21 the organization that may have $199,000. 22 The organizations that have good accounting 23 firms that can manipulate cost accounting, because 24 that's what we're talking about -- we're not talking 25 about from the executive board, or any way, in 1 capping executive salaries. We're talking about, 2 how much money of State money can go into those 3 salaries. 4 That's an accounting issue. 5 Who's going to get hurt, is the 6 community-action programs, or some of the smaller 7 organizations, that don't raise a lot of money, it's 8 mostly government-funded, and there's no other 9 alternative sources to go and do that; yet, that 10 person needs to be able to be there, and to manage 11 the organization of regulation. 12 So, the larger you are, the more diverse you 13 are, the more you have endowments, the more you have 14 other sources of pots, the more you're going to be 15 able to do the same thing you were doing before. 16 And, you're going to pay the same thing before. 17 You move the pies around, in terms of the 18 state-government dollars, and everybody will feel 19 happy, but nothing has changed. 20 And the smaller organizations that are 21 heavily government-funded, usually community-based 22 organizations, are the ones that are not going to 23 have the room to manipulate the system; or, even be 24 able to provide, perhaps, the attorneys that might 25 be necessary to advise them on how to maneuver 1 around this. 2 Administrative costs are rising every day 3 around compliance issues, particularly at a Medicaid 4 world. 5 And what's happening is, that more and more 6 organizations are saying -- the small 7 community-based organizations -- 3, 5, even, 8, 8 10 million -- are saying: We cannot exist as a 9 small organization. We're going to have to be 10 gobbled up by a conglomerate. We're going to have 11 to form a merge with somebody else. 12 And when do you that, salaries are going to 13 up even more so. 14 And Michael had said it right: Scale raises 15 salaries. 16 Salaries are dependent upon: The level of 17 complexity; level of professionalization; number of 18 people supervised in that world; how successful you 19 are, entrepreneurially, and otherwise; and, how much 20 the budget size is. 21 That should be -- those are usually 22 predominant indicators of what the salaries are 23 going to be. 24 We believe that part of the problem here, 25 from a policy perspective -- 1 And I also sit on the AG's Leadership 2 Nonprofit Revitalization Committee. We worked with 3 the comptroller, for several years, on their 4 reports. 5 -- everybody's working in silos. No one 6 seems to be looking at nonprofit regulations, 7 compensation in a broad way, contractural processes, 8 procurement processes, payment processes. 9 It's being done across all of the State 10 agencies differently. 11 And, actually, the way the Governor's order 12 is read, it's going to be continued to be done 13 differently, and nobody's looking at it as you would 14 look at businesses' environment, and say: 15 How do we deregulate? 16 How do we eliminate waste; pure waste? 17 How do we make sure we -- the regulations we 18 have are regulations that work, and are 19 cost-effective? 20 And, how does relate to the dollars of the 21 State contract? 22 And, how it does relate to the performance 23 we're buying? 24 None of the conversation today has been about 25 performance. 1 Is the State of the New York buying what 2 people are -- what you want to buy? 3 And that's, fundamentally, a question. 4 And most nonprofits will say: You're on an 5 outcome basis, and we have to -- our contracts 6 control every penny we spend, and how we can pay. 7 We can't buy our copy machine. We have to 8 lease a copy machine; but, yet, we're supposed to 9 perform all these things, and we have less and less 10 control. 11 I want to be able to say, the "reasonable" 12 question, and I come at it from a different 13 perspective: I think the IRS is unclear. It's 14 about process. 15 The IRS doesn't seem to be really enforcing 16 compensation, that's way too high, or outside. It 17 seems like it almost has to have an egregious 18 situation. It hits the media before anybody goes 19 and does anything about it. 20 You have, right across the river here, in 21 Troy, a college head that makes 1.9 million. 22 Number six or seven in the country. College isn't 23 even in the top 50. 24 Those things exist, and those things shock 25 the conscience -- 1 SENATOR MARCELLINO: Can we consolidate? 2 Because -- 3 DOUGLAS SAUER: Okay. 4 What we would like to see, is -- is, 5 actually, take a bit of a Connecticut model. 6 We would like to see a comprehensive approach 7 to reform around how the State does business with 8 nonprofits, so this all hangs together, and is 9 logical, and it's not being done in a piecemeal way. 10 State of Connecticut has appointed a liaison 11 out of the governor's office, and just created a 12 cabinet on nonprofit health and human services, 13 specifically looking at: 14 The relationship, the partnership; how it can 15 be a positive partnership; 16 How it can be productive business 17 relationship; 18 Get away -- you know, clarify waste, as well 19 as, trying to make outcomes better on -- at that 20 level. 21 So, we believe that this is the time to 22 actually invest the opportunity this presents, is to 23 really look at the State's contractual business 24 environment, and work together with the State of 25 New York in a comprehensive way, with all of the 1 units -- the executive branch, the comptroller, and 2 the AG's office, as opposed to separate silos -- 3 with the nonprofits. 4 And this is part of the issue that we have; 5 is that, we have not been at the table to discuss 6 this. 7 We have not been at the table. 8 This is the first time, I think, in terms of 9 this issue, we've been invited. 10 The task force doesn't have not-for-profits 11 on it. 12 The input was, more: What are you doing, and 13 how are you doing it; and what's your ideas? 14 And I think, us, as a sector, we have a stake 15 in this, because it affects us as an entire sector. 16 And from our perspective, we're very 17 concerned. And, we want that good policy that 18 works. 19 And we've really asked that this be done: 20 that we're at the table. 21 I want to take a minute -- just a brief 22 minute -- and say, that, there are things, you know, 23 that hasn't been touched here, in terms of executive 24 compensation; is that, New York State not-for-profit 25 corporation law allows executive directors and 1 CEOs to be voting members of the board of 2 directors. 3 So, I can be the boss, and I can be an 4 employee. 5 And that intent that inherently pro -- is a 6 conflict of interest, from our perspective. 7 And there's a lot of arguments about why it 8 should happen, and it's okay. 9 But, you -- we have -- you know, we have 10 things -- processes are set up, that I can do that. 11 Process is set up, I can have family members on our 12 board. 13 So when we talk about independence, and those 14 kind of things, we're adding regulations on top of, 15 perhaps, laws that need to be changed, 16 fundamentally, to begin with, to avoid these 17 circumstances for happening. 18 So, there's my brief testimony. 19 SENATOR MARCELLINO: Thank you. 20 And, I do appreciate your being here and 21 taking the time to do this. 22 These are -- as you well know, these are 23 tough times. 24 The public, as my colleague Senator Diaz 25 said, they're suffering. 1 They're suffering economically. They're 2 suffering in a whole bunch of different ways. 3 People are worried about their jobs. They're 4 worried about what's going on in the next minute. 5 It becomes incumbent upon us to look at 6 everything -- and I mean "everything" -- as to how a 7 tax dollar is being spent, and is being used. And, 8 is the taxpayer getting a bang for a buck? 9 We have an obligation to do that. 10 We will, and are, looking at every level of 11 government. Every level of government has received 12 across-the-board cuts. 13 I'm not going to go through the litany of 14 cuts, and reduction in personnel, and everything 15 else, including the Legislature, and including the 16 legislative salaries, and including legislative 17 personnel. 18 All have been reduced/cut over the years in 19 response to fact that the State simply doesn't have 20 enough money to cover a lot of the costs. 21 So, these are tough times. 22 I would just say this to the not-for-profits: 23 As I said at the beginning, we recognize, 24 99 percent, doing a great job. 25 And I don't say that lightly. 1 You're doing a great job, and it's 2 appreciated. 3 However, we have an obligation, and we must 4 look at, and for, the 1 percent who are not, who 5 give us all a bad name. 6 I hate it when I see a colleague go to jail. 7 One of my colleagues gets brought up on 8 charges, I don't like it, because it makes me look 9 bad. 10 The public says: Oh, there's another crooked 11 politician. Ha ha ha! 12 I don't like that. 13 I work hard, and so do my -- the colleagues 14 up here. We all work hard; we try to do the best we 15 can. 16 One rotten apple can bring us all down. We 17 all know that. 18 So, we're looking, and we're out there trying 19 to check. 20 So, my message back to your colleagues and -- 21 who are working hard in the field: Don't take it 22 personal, because it isn't. 23 We're just doing what we have to do to make 24 sure that we're spending the taxpayers' money 25 appropriately, and making sure that the functions 1 that are supposed to be performed, are being 2 performed by the entities who are taking the money 3 to do that. 4 That's our job. 5 To that end: Do members of your 6 organizations, the organizations that you represent, 7 do they have a written policy? 8 Are there written policies for your -- for 9 compensation of executives? 10 Or does it -- 11 DOUGLAS SAUER: I think most of them have, 12 because we do a lot of training, and we emphasized 13 that for a number of years. 14 I mean, this -- some of them just laugh at 15 it, and say, you know: 16 What are we going to do, evaluate a person, 17 and whether they're comparable, to find out that we 18 aren't providing benefits, only to say, we don't 19 have the money to provide benefits? 20 So, do we need to go through all these hoops, 21 when we know what we have, in terms of the poor 22 agencies, and the agencies that really are 23 struggling? 24 I'd say, probably, in terms of, maybe 25 40 percent has written policies. 60 to 70 percent 1 follows policies. 2 For some of these organizations, it's tough 3 to even -- 4 SENATOR MARCELLINO: 40 percent have 5 policies -- 6 DOUGLAS SAUER: Yeah. And -- 7 SENATOR MARCELLINO: -- and, about, 60 to 8 70 percent follow? 9 DOUGLAS SAUER: -- 60 to 70 follow -- follow. 10 They have practices. 11 SENATOR MARCELLINO: Okay. 12 DOUGLAS SAUER: But they -- again, you talk 13 to a lot of organizations, that: You're talking 14 about documentation, and writing up policies, and, 15 when are we going to be able to do that? 16 You know, because everybody wants written 17 policies. 18 And, most of them practice well, but don't 19 necessarily have all the written documentation on 20 what they do and how they do it. 21 However, I want to say, that, those boards of 22 directors are eager to learn this stuff, and are 23 dying for that information, and dying for assistance 24 on how to do it right. 25 An extraordinary number want to do it right. 1 These are volunteers, and boards, that are, 2 just, they're trying to get their organization 3 alive, and trying to raise money at the same time. 4 And, they're looking -- from their 5 perspective, they're looking more behind their back 6 than they're looking forward to solving problems in 7 the community. 8 And that's causing people not to want to 9 serve on these boards anymore. 10 That's a whole other problem. 11 SENATOR MARCELLINO: Do State agencies that 12 you deal with, do they ask for these documents? 13 These policy statements? 14 DOUGLAS SAUER: Some of them do. 15 I mean, there's different accreditations, 16 there's different licensing requirements. 17 I mean, it's all over the place, in terms of, 18 it's not one State agency, Department of Health. 19 And there's a hundred different ways that things are 20 done by the funding stream. 21 And -- but some of them do ask for that. 22 Some of them require that; some of them don't. 23 SENATOR MARCELLINO: Do you feel, in general, 24 that not-for-profits are meeting the IRS 25 requirements? 1 DOUGLAS SAUER: By far, yes. 2 SENATOR MARCELLINO: Okay. 3 If you know, what is the -- what would be the 4 average administrator's pay for your association on 5 this? 6 DOUGLAS SAUER: $60,000. $65,000. 7 SENATOR MARCELLINO: In the, sixty, 8 sixty-five thousand dollar range? 9 DOUGLAS SAUER: Yeah, yeah. 10 MICHAEL COONEY: Okay. 11 Can your association members meet the 12 25 percent administrative cost cap? 13 DOUGLAS SAUER: Most of our association 14 members would love to get 15 percent. 15 [Laughter.] 16 And I want to go back to this: That most 17 don't get that. 18 So, again, we're kind of looking at it 19 from -- as if, somehow, it's a luxury. 20 So, a lot of them would like it at 21 15 percent. 22 The only -- Michael mentioned the research 23 foundation. 24 Research foundation gets 40 to 50 percent 25 overhead off State dollars and federal dollars. 1 And -- you know, and we look at that. 2 I don't know how much overhead the State of 3 New York takes out of federal dollars when it comes 4 down to the federal -- State -- New York State 5 agencies, and then goes out to not-for-profits. 6 I'll bet you the State of New York takes more 7 than 15 percent for their overhead on that. 8 So, 25 percent is pretty healthy for most 9 [unintelligible]. 10 I mean, if you look at what -- and, again, 11 overhead is dependent upon your sophistication in 12 doing cost accounting. 13 The smaller the organization is, the more 14 it's community-based; the less infrastructure it has 15 to do sophisticated cost accounting. 16 Like, they don't allocate space, and it all 17 just goes to overhead rather than our program; or, 18 they take the executive director, who may be 19 spending 30 percent of their time, or 50 percent, on 20 program, but they'll just say, it's 100 percent. -- 21 because they aren't sophisticated in doing it. 22 So some of this is going to be an accounting 23 game. And those that can play it, that have the 24 infrastructure, are going to be able to show it, and 25 the smaller organizations may not. 1 SENATOR MARCELLINO: Thank you. 2 DOUGLAS SAUER: Uh-huh. 3 SENATOR MARCELLINO: Senator? 4 SENATOR SQUADRON: Thank you very much, and 5 thank you for testifying. 6 And, I want to echo what Chairman Marcellino 7 said; that -- to the extent to which you feel that 8 all of your members are being painted with too broad 9 a brush, to the extent to which we in government are 10 not grateful enough for folks who work in the 11 nonprofit sector, serving their communities every 12 day. 13 I think that's an incredibly important point, 14 as you point out, the average compensation is in the 15 $60,000 range. 16 I do think -- and, then, it's an important -- 17 a very important point. 18 I think the other side is true, too. 19 And, you know, I think, at some point you 20 said today, concerns me a little bit, because I'm 21 hearing that there's no problem at all. 22 And I think we need to acknowledge the vast, 23 vast majority of organizations (a) are so small that 24 this threshold would never affect them, or cut in 25 half, (b) are doing everything they can in the most 1 precise, responsible way possible. 2 I got to tell you, though, looking at 3 articles -- Senator Diaz raised one earlier, it's 4 been out -- it seems to me there is a problem -- 5 DOUGLAS SAUER: There is -- 6 SENATOR SQUADRON: -- and there's been a 7 problem. And there's a lot of dollars associated 8 with that problem. 9 It's -- if -- absolutely, a small number of 10 individuals, and even organizations, but, we agree 11 there's a problem? 12 DOUGLAS SAUER: Oh, yeah, I totally agree. 13 I started that off; there a problem that 14 needs to be eliminated. 15 I don't think a $199,000 cap to State 16 investments, what you're going to buy out of a 17 salary, does that, because, is the problem excessive 18 compensation? 19 SENATOR SQUADRON: What level cap does? 20 DOUGLAS SAUER: Huh? 21 SENATOR SQUADRON: What level of cap does? 22 DOUGLAS SAUER: Well, it's -- we're talking 23 about two different things. 24 We're talking about, what somebody gets paid 25 versus how much the State wants to pay towards that. 1 There is nothing that I've seen, that says 2 you want to go after overall salaries of nonprofits. 3 And it's -- so, I could still make 4 $1.5 million, and, as long as I account, that, less 5 $199,000 of State monies, I can still make the 6 1.5 million. 7 So, is the issue the -- is the issue: 8 The sticker shock from, Wow, that's a lot of 9 money for a health-care company? 10 Or is the issue, is, Well, we're just 11 limiting what we pay for it? 12 SENATOR SQUADRON: Well, in your view, 13 what -- 14 DOUGLAS SAUER: So, perhaps -- 15 SENATOR SQUADRON: -- in your view, what's 16 the issue? 17 The overall -- you would say, the overall 18 compensation? 19 DOUGLAS SAUER: I think the overall is more 20 of a problem than how much State should say -- the 21 State should buy what it wants to buy. 22 SENATOR SQUADRON: So, the overall -- 23 DOUGLAS SAUER: And [unintelligible] comes 24 attached to that. 25 So I think it's less about, how much the 1 State is buying, because you make that decision 2 through a procurement process, what you want to buy. 3 And I think the issue, from a public's 4 perspective is, some of these salaries are just 5 outrageous, and -- 6 SENATOR SQUADRON: So what's a good cap on 7 salaries, in your view? 8 DOUGLAS SAUER: What's a good cap at 9 salaries? 10 Uhm... 11 I think, if -- this is my personal opinion, 12 and, certainly, from a legal perspective, they'll 13 say -- 14 SENATOR MARCELLINO: We won't tell anybody. 15 DOUGLAS SAUER: -- [unintelligible] -- 16 Pardon? 17 SENATOR MARCELLINO: We won't tell anybody. 18 DOUGLAS SAUER: Well, I'll tell you, if 19 somebody's making a million dollars, I think you 20 really got to stand back and look at it. 21 And to be honest with you, if somebody's 22 making $500,000, I think you really got to step back 23 and look at it. 24 I'd rather focus on that, than too broad a -- 25 establish a whole bureaucracy that's looking at a 1 much more broader map. 2 SENATOR SQUADRON: So, in some ways, your 3 concern with the executive order, is it gives too 4 much flexibility? 5 That, it protects, sort of, the State dollar, 6 but it doesn't actually deal with the issue -- 7 DOUGLAS SAUER: The issue -- 8 SENATOR SQUADRON: -- in your view? 9 DOUGLAS SAUER: The issue that you we have 10 with outside establishments, it doesn't deal -- 11 again, what's the issue that we're talking about? 12 But I -- I am confident that a lot of the 13 higher-paid ones are still going to continue in 14 their same processes, and it's just matter of 15 getting a waiver. 16 There is some e-mails that went out, right up 17 to -- the day after the executive order, out to 18 certain executives, saying -- from some trade 19 association, saying: Don't worry about this. 20 You're going to get a carve-out. 21 It's like everything else: The strong lobby 22 groups get carve-outs on these things; and the ones 23 that aren't -- don't have much of a voice in the 24 halls, don't. 25 So, I don't -- I wonder if it's going to 1 solve anything. 2 I think a lot of larger ones are still going 3 to get by. 4 SENATOR SQUADRON: I don't want to speak for 5 the Governor, but it seems to me, reading the 6 executive order, that its goal is to protect State 7 dollars. 8 In a time where there's not a lot of State 9 dollars, it's to protect State dollars, and not to, 10 sort of, overdefine a sector that, you know, as 11 we've heard from the previous witnesses, as we're 12 hearing from you, is so diverse, in terms of, the 13 size of organizations, source of funding, services 14 they provide. 15 So, you know, I think that the focus -- and 16 we could talk about whether this is the one that you 17 think is wise -- is the focus, is, not spending 18 State dollars on wildly high compensations. 19 DOUGLAS SAUER: But how much money are you 20 spending on trying to find that out? 21 And what's going to be the end result of what 22 you change? 23 SENATOR SQUADRON: Well, certainly, a 24 fraction of some of the high -- 25 DOUGLAS SAUER: And who's evaluating that? 1 So, I'm wondering whether that's a solution 2 that's being proposed; whether you -- really, is 3 going to be it; because, all they got to do is, 4 manipulate how much money's coming into my salary 5 from the State government. 6 SENATOR SQUADRON: Right. 7 DOUGLAS SAUER: That's all you gotta do. 8 So, I'm going to still make -- I'm still 9 going to be the CEO making $1.5 million. 10 What have you changed? 11 You've spent tax dollars, kind of, going 12 after an issue that you really probably won't 13 change. 14 And, it's probably the smaller ones that are 15 gonna put up a lot of money that they don't have, 16 trying to deal with the regulation; much less, have 17 multiple State agencies, have waivers, and they all 18 establish their own criteria, and they have their 19 own influences. 20 And if I have an OASIS bud- -- funds, and I 21 have OMH funds, and OMRDD funds, I got three 22 different State agencies now I got to go through 23 regulatory waivers that have different criteria. 24 I mean, it's bureaucracy. 25 SENATOR SQUADRON: And I -- just in the 1 interest of time, look, I think that the concerns 2 you raised, especially relative to some of the 3 smaller organization, some of the 4 less-handsomely-paid administrators and executives, 5 as -- you know, you have a very sympathetic hearing 6 here. 7 A lot of the work that I've done in the 8 Senate has been supporting such organizations. 9 We need to have a solution, though. 10 DOUGLAS SAUER: Uh-huh. 11 SENATOR SQUADRON: And I would love to hear a 12 solution coming from your organization. 13 I think I might have heard, a $500,000 hard 14 cap, rather than this formed one, which I think is 15 one that we should, you know, seriously consider, 16 and look at. 17 DOUGLAS SAUER: If you -- yeah, I -- 18 SENATOR SQUADRON: But, again, the simple 19 fact that there's going to be gaming; 20 There's going to be -- you know, that any 21 solution, when you try to increase flexibility 22 increases the ability to game the system, that's 23 just life, I don't think is a reason to leave the 24 status quo. 25 Because, I got to tell you, when I look at 1 some of the compensation levels, some of these 2 organizations that are nonprofits in name, but, in 3 fact, are 97 percent, 99 percent, funded by taxpayer 4 dollars. 5 You know, it's funny, we have 2,500 State and 6 City employees -- New York City and New York State 7 employees -- who make more than 2,500 -- make more 8 then $200,000 a year. 9 2,500 of them. 10 And, so, there's certainly a case, that, when 11 you're doing good work, and you're doing public 12 service, you should make money. 13 Of course, one of them is the golden 14 parachute for the former coach at SUNY Binghamton. 15 But, even that aside, you have 2,499. 16 And -- the question, though, is: Why these 17 folks should be making in the range of 200 to 500, 18 200 to 300, while you have folks who are, basically, 19 essentially, State-funded, making in the millions. 20 DOUGLAS SAUER: And are we -- 21 SENATOR SQUADRON: And that has to be solved, 22 and we need a solution for that. 23 DOUGLAS SAUER: Are we talking about 24 for-profits, too, in this? 25 Are we talking about for-profits that 1 contract with the State of New York? 2 Or, because you're a for-profit, and you can 3 make money -- you can much, much money off the state 4 taxpayers as you want? 5 Are we including those? 6 SENATOR MARCELLINO: Actually, the Governor's 7 executive order was slightly vague on that. 8 It does reach into the for-profits. And, 9 that is a situation that has to be looked at as 10 well. 11 Do we want to or not? That's another 12 question. 13 The other point, though, here, is, the tax 14 dollars, and how it's being spent. 15 And I think that's where we want to focus 16 ourselves on, on that; and whether or not the 17 Governor's executive order goes, I think, a little 18 bit further than he might want it to. 19 That's something we have to look at. 20 DOUGLAS SAUER: Let me -- 21 SENATOR SQUADRON: And, again, we -- and, 22 just -- and I'm gonna just -- I've taken up too much 23 time. 24 But, again, I do appreciate what I heard 25 might have been a proposal, to just have the hard 1 $500,000 cap. 2 That's a different direction than the 3 Governor went, but, that's what this hearing is for. 4 We have a problem. We all need to agree we 5 need a solution. And, there are probably different 6 ways to make that happen. 7 DOUGLAS SAUER: Just -- 8 SENATOR SQUADRON: Thank you very much. 9 DOUGLAS SAUER: Yeah, I would just like to 10 make one comment about the for-profit, because that 11 needs to be considered. 12 I know this Senate has passed, and it didn't 13 get signed, L3C legislation: Social-responsible 14 for-profit corporations. 15 And, there's a whole talk about 16 entrepreneurs, and all that, and diverting money 17 from charitable organizations over these for-profits 18 that do social re- -- that don't have to report 19 their compensation, because making money means they 20 can be more successful. 21 So, if we look at this, I think, if it's 22 about take State -- State tax dollars going towards 23 buying, what, and is it worth it? -- it doesn't 24 matter if it's for-profit or nonprofit. 25 If that's what this is about. 1 SENATOR SQUADRON: And just as a note: That 2 "benefit corporation" bill was my bill, and there's 3 no tax benefit. So, those corporations are paying 4 taxes, which -- 5 DOUGLAS SAUER: Well, they don't have to 6 report their compensation. 7 SENATOR SQUADRON: But, yes -- but they pay 8 taxes. 9 DOUGLAS SAUER: Yeah, but they do not report 10 compensation. 11 SENATOR SQUADRON: That's correct. 12 DOUGLAS SAUER: And we're talking about 13 compensation. 14 SENATOR MARCELLINO: Senator Zeldin? 15 SENATOR ZELDIN: Well, two points. 16 First of all, great presentation. 17 Thanks for being here. 18 And I would agree, that you should -- should 19 have a seat at the table, especially representing so 20 many small- and medium-sized not-for-profits. 21 So, I'm glad Senator Marcellino invited you 22 to be here to testify. 23 It sounded like you have a lot of very 24 specific ideas of the way that the State can be more 25 friendly towards all those not-for-profits doing the 1 right thing. 2 My office happens to be 802, the LOB. And 3 I -- you know, we all have offices that probably 4 would love to see, specifically, some of your 5 thoughts, because, you started getting into a lot of 6 them. For the sake only time, can't get into all of 7 them with the sufficient amount of details. 8 So, my first is just a request to please 9 provide me with the details of what you're referring 10 to. 11 The second part, the -- there is a problem. 12 And, you know, Senator Squadron, really, you 13 know, he just hit on it, really, that that was -- 14 really, that was where I was going with it as well. 15 Just because you have so many members that 16 are doing the right thing, I -- what happened over 17 the summer, as we were just watching, just every 18 single day, all of these seven-figure abuse stories 19 coming out, the legis- -- we have to do something. 20 DOUGLAS SAUER: Thank you. 21 SENATOR ZELDIN: I mean, you hear -- I mean, 22 one of the stories, you know, hundreds of millions 23 of dollars of one, you know, overbilling, Medicaid. 24 "Hundreds of millions of dollars." 25 So, it's -- it's a problem. 1 And I think that, maybe, even your members 2 should want us to tackle that larger problem, 3 because it would help make the public discourse one 4 that would be more beneficial to the entire 5 industry. 6 DOUGLAS SAUER: I totally agree. 7 SENATOR MARCELLINO: Thank you. 8 Thank you, Doug. We'll be talking. 9 DOUGLAS SAUER: Thank you. 10 [Senator Diaz leaves the hearing room.] 11 SENATOR MARCELLINO: The next speaker is 12 James Lytle, who is a partner in Manatt Phelps & 13 Phillips, LLP, who will be testifying on behalf of: 14 The Association for Community Living; 15 Black Agency Executives; 16 Catholic Charities of the Archdiocese of 17 New York; 18 Catholic Charities Neighborhood Services, 19 Diocese of Brooklyn and Queens; 20 Coalition of Behavioral Health Agencies; 21 And, several others, including UJA Federation 22 of New York, just to keep it balanced. 23 JAMES LYTLE: Fair enough. 24 Thank you very much, Senator Marcellino, and 25 members of the Committee. 1 I do appreciate the opportunity to testify 2 today on behalf of what's, actually, 17 associations 3 and coalitions of not-for-profit entities. 4 And I can understand why you spared all of us 5 the entire list. 6 These organizations represent hundreds of 7 not-for-profit organizations that contract with 8 New York State and provide essential services. 9 We, obviously, appreciate why we're here. 10 And, the concerns that have been raised over 11 these issues, and believe that there are steps that 12 could be taken to address the concerns that have 13 been raised. 14 We do believe, however, that even 15 well-intentioned proposals to address these issues 16 could have some unintended consequences, and make it 17 very difficult for legitimate not-for-profit 18 organizations to recruit the leadership that they 19 need, to meet their mission, and to meet the 20 purposes for which the State's contracted with them. 21 We -- I really have just four objectives. 22 And thanks to, both, the passion that 23 Mr. Sauer offered and the expertise that 24 Mr. Cooney offered, I can narrow down my points to 25 the things that I think I can really emphasize. 1 The first is, really, to emphasize the role 2 that the not-for-profit sector plays in New York, at 3 least briefly. 4 Not-for-profit entities are a significant 5 part of this state's economy: Provide employment 6 with a million New Yorkers; provide the lion's share 7 of health and mental health and other human services 8 to all New Yorkers; and, are irreplaceable parts of 9 the safety net that we provide for our most 10 vulnerable citizens. 11 There are tens of thousands, obviously, of 12 not-for-profits in the state, many of whom have 13 total revenues less than $199,000, and are, 14 obviously, not going to be seriously affected by the 15 cap. 16 There are others that receive over 17 a billion dollars in State support, and are, 18 obviously, in a different situation with respect to 19 the level of complexity of the operations that 20 they're entrusted with, with handling. 21 22,000 active State contracts exist with 22 not-for-profits, according to the State 23 Comptroller's Office. 24 And I think, if you've seen one of those 25 22,000 State contracts, you've probably seen one of 1 those 22,000 State contracts. They run the gamut of 2 services, from meals for the elderly, housing for 3 the homeless. Everything, from prenatal care, to 4 hospice care, community residences for disabled 5 individuals, daycare services. 6 Over 1.2 million people in New York are 7 employed in not-for-profit organizations. 8 Of the top twenty employers in New York, 9 nine are not-for-profit; four of the number within 10 the top ten of employees [sic]. 11 And, on Long Island alone, for Senator Zeldin 12 and Senator Marcellino, 11 percent of all employment 13 on Long Island, public and private, are with -- are 14 in not-for-profit organization. 15 Overall payroll on Long Island, according to 16 the Long Island Association for this sector, is 17 6.4 billion. And they generate, in addition, in 18 other jobs in the for-profit sector, an additional 19 132,000 -- I'm sorry -- another 88,000 jobs in the 20 for-profit sector. 21 The economic contributions in the 22 not-for-profit sector are, obviously, not why 23 they're here. 24 They're here to perform essential public 25 services at the express urging of New York State. 1 They are the private part of the 2 public-private partnership that is often talked 3 about. And they've been contracted by the State 4 because the State's come to the conclusion that they 5 can do it more cost-effectively, and at, generally, 6 higher quality than the State can provide these 7 services itself. 8 Just like every other sector of the economy, 9 the not-for-profit sector's also been hit by the 10 recession. Deep cuts in governmental support, as 11 Doug has indicated, compounded by reductions in 12 charitable giving, have put a lot of not-for-profit 13 organizations in significant financial distress. 14 Mr. Cooney made my second point, which is, 15 that not-for-profit corporations are already subject 16 to very close and careful scrutiny, not only by the 17 Attorney General's Office, but by the 18 Internal Revenue Service. 19 And, I don't think I need to reiterate those 20 requirements, except to say, that the most sensible 21 approach, in our judgment, is to build on what 22 exists, in terms of the existing regulatory 23 structure, and strengthen it, to make it even 24 clearer that not-for-profit boards ought to be held 25 accountable for the decisions they make, with 1 respect to executive compensation, administrative 2 costs, and the balance of issues that they have to 3 address. 4 I should point out, that on the 5 administrative-cost side in particular, as I think 6 Mr. Sauer mentioned, just about every State agency 7 has an approach to try to limit the amount it pays 8 for overhead. It varies all over the lot, and it 9 does -- it makes sense to vary, to some degree, 10 because the nature of the services being provided 11 are different. 12 Overhead in one agency is probably not going 13 to be comparable to another, dependent on the nature 14 of the services that are being provided. 15 So, turning to the proposals that the 16 Governor advanced through the budget and through the 17 executive order, what they would do is subject every 18 entity that contracts with the State to a 19 "one size fits all" limitation, both on executive 20 compensation and on administrative expense, that 21 don't take into account the unique nature of the 22 contracting entities, would seriously damage, we 23 believe, the recruitment of qualified executive 24 leadership in the sector, and would, we think, be 25 ultimately unworkable, and probably unfair responses 1 to a problem that I think, as the other witnesses 2 have indicated, prob- -- and as you have conceded, 3 probably requires more of a surgical-laser approach 4 than a sledgehammer. 5 Again, we know why we're here: abuses have 6 occurred. 7 No evidence has been advanced, by anyone so 8 far, that suggests that these abuses are either 9 widespread or particularly unpunished when they have 10 occurred. 11 A single statewide cap on administrative 12 expenses and executive compensation, we don't think 13 is the answer. 14 The "one size fits all" approach, basically, 15 to address the compensation and administrative 16 spending practice of tens of thousands of 17 not-for-profit organizations, really won't 18 effectively curb excessive compensation by a handful 19 of offending entities, and will do harm to an 20 already fragile not-for-profit sector. 21 Rather than focusing limited enforcement and 22 regulatory resources on all of the entities that 23 contract with New York, I think, if a proposals 24 could be developed that would target the abusers -- 25 those individuals, those organizations -- that have 1 clearly exceeded the standards that have already 2 existed in law for a decade or more, and would hold 3 those organizations under account. 4 The problems with the proposals that are 5 before the legislature, and contained in the 6 executive order, are, among others: 7 They fail to recognize the vast disparities 8 in the contracting entities, and very significant 9 variations among them, including, their size, the 10 complexity, their location, where costs obviously 11 vary, and, the nature of the services that they 12 render; 13 They ignore the specialized expertise and 14 experience that may be required to lead those 15 organizations. 16 It's been mentioned, for example, on the 17 behavioral-health world, that there have been 18 allegations of excessive compensation, some of them 19 justified. 20 But, you have a situation, where you're 21 hiring a child psychiatrist to oversee an important 22 program, one has to take into account the -- what 23 the market is for persons with those sorts of 24 specialized expertise, you would deprive 25 not-for-profit organizations of the ability to 1 compete for the best executive leadership. 2 Maybe more than anything else, it's our view 3 that it's -- the proposal, as advanced, again, 4 well-intentioned and courageous effort to put down a 5 marker on this issue, is, ultimately, unworkable. 6 If it means, as you were discussing, 7 Senator Squadron, that this is a hard cap on 8 not-for-profit corporation, or, if were modified to 9 be such, it would almost surely, first of all, be 10 subject to a challenge by one or more of the larger 11 not-for-profits -- universities, health-care 12 systems, et cetera -- that would contend that they 13 may have, first of all, contractual obligations to 14 their executive leadership. But most importantly, 15 they would argue that they're using other resources 16 to supplement these salaries that may be beyond the 17 State's ability to limit. 18 So, if -- if even the largest not-for-profits 19 were then subject to a hard cap on compensation, you 20 would almost certainly result in a host of waivers 21 and exceptions, implemented by the various State 22 agencies, that would question whether this proposal, 23 in fact, is fair and even-handed in its approach. 24 On the other hand, if it only affects those 25 organizations that receive, all, or most, of their 1 money from State resources, it would 2 disproportionately impact on those organizations 3 that primarily serve the most disadvantaged 4 New Yorkers; and as a result, have to rely more on 5 State support than anything else. 6 So, if, on the one hand, the for-profit and 7 not-for-profit entities that have a lot of other 8 revenues and can supplement compensation, can 9 effectively continue to exceed the compensation cap, 10 and not worry about the administrative-cost 11 limitation, you would be left with a proposal that 12 treats one set of organizations one way; other 13 organizations that have to rely more on State 14 resources, differently. 15 And, I don't think any proposal that 16 particularly targets the organizations that serve 17 the most disadvantaged New Yorkers should be 18 entertained. 19 One of the dilemmas of this, it seems to me, 20 is that it goes counter to some other important 21 State policies as we try to aggregate organizations; 22 whether they're school districts, State agencies, or 23 not-for-profit organizations, to make them more 24 cost-effective, and more efficient in providing 25 services. 1 I know, I'm currently representing a number 2 of entities in this community, and elsewhere, that 3 are merging, to form larger, ultimately, more 4 efficient, cost-effective organizations that serve 5 the public interest. 6 It is hard to imagine, that if you have two 7 organizations, each of which, under this proposal, 8 can properly pay their executives $199,000; or, say, 9 you have three or four such organizations that 10 decide to merge, to become more cost-effective, that 11 you're gonna pay the executive, at the end of the 12 day, of this merged organization, the same amount, 13 not withstanding the increase in complexity, and the 14 increased responsibilities that that larger 15 organization would have to fulfill. 16 As I noted, there are a multitude of already 17 existing requirements that try to limit overhead 18 costs and administrative costs, because everyone 19 agrees that getting direct services to the people 20 who need them, Senator Diaz noted in his comments 21 earlier, is the key. 22 The problem is, that by taking a -- an across 23 the board approach about what that level of 24 administrative expense should be, you ignore very, 25 very different circumstances in different agencies. 1 I was told, for example, that, for people who 2 provide residential services for children with 3 serious emotional disturbances, heat and food are 4 included within the calculation of the 5 administrative expenses. 6 It -- other organi- -- other State agencies 7 define "administrative expenses" in different ways. 8 To then have, across the board, the 9 administrative expenses have to equal or be less 10 than some threshold is just simply not going to 11 work. 12 There's a lot that, obviously, remains to be 13 defined from the executive order and the 14 legislation. 15 I understood, from discussions with the 16 members of the Executive Chamber, that maybe 17 benchmarks will be used, to try to set cat- -- set 18 salaries in different kinds of organizations, to 19 take into account the complexity of this task, and 20 the fact that some organizations, as I say, may 21 receive $50,000 in State support, and others receive 22 in excess of a billion dollars of State support. 23 The problem is, it's hard to imagine the 24 bureaucracy that will have to be established to make 25 all of the benchmarks for all of the different kinds 1 of entities that are being funded out there, to 2 update them, presumably, from time to time. 3 It seems like an overwhelmingly complicated 4 task, and not something, frankly, that government is 5 probably very good at. 6 Two examples of how government seems to be -- 7 SENATOR MARCELLINO: We're very good at 8 bureaucracy. 9 [Laughter.] 10 JAMES LYTLE: Well, not to make a point 11 that's close to home, but, the legislature has 12 struggled, for example, with how to deal with 13 judicial compensation; 14 And, has struggled how to compensate its own 15 members. 16 And I don't think either of those examples 17 demonstrate that the State typically does a very 18 good job of making compensation decisions that are 19 fair, and that recognize the value of people's 20 services. 21 So, what do you do instead of all of this? 22 Instead of injecting some sort of 23 bureaucratic approach to try to set up salaries that 24 range the limit from the size and complexity of 25 these various organizations, I think there's a 1 better way to make sure that not-for-profit boards 2 of directors understand what their obligations are, 3 and are held to them, along the lines that 4 Mr. Cooney also suggested. 5 If we take the IRS guidelines, and enshrine 6 them in the not-for-profit corporation law, and make 7 them even clearer, to the extent they need to be, so 8 that compensation policies have to be adopted across 9 the board by not-for-profit entities, and they have 10 to be prepared to defend the compensation decisions 11 they make, I think we would go a long way to 12 improving the current situation. 13 And, second: Authorize the attorney general 14 to investigate and enforce those requirements. 15 It's the Attorney General's Office that's 16 been given this responsibility in New York State, to 17 oversee the charities. The Charities Bureau has 18 been aggressive in doing so. 19 If a not-for-profit refuses to comply, and 20 doesn't meet -- doesn't -- can't demonstrate that it 21 meets these standards, the contract with that 22 not-for-profit could be terminated, and the board of 23 that organization could be held accountable. 24 It may be necessary to provide additional 25 resources to the Attorney General's Office to 1 undertake this task. And I think efforts could be 2 made to identify those resources through reasonable 3 fees on the not-for-profit sector, if necessary. 4 And, finally: Require State agencies to 5 adopt reasonable administrative-costs limitations, 6 as, frankly, most of them already have, but make 7 sure that they meet the State's need, to make sure 8 that dollars end up at the people with services to 9 the people who require them. 10 It might even be worth considering -- I hate 11 to suggest yet another commission to address an 12 issue -- but, the -- and, perhaps, one could build 13 on the existing task force, Senator, that you serve 14 on -- to study this issue, and give it the care and 15 consideration that it requires. 16 It doesn't need to take a very long time to 17 come to those conclusions, but some serious look at 18 the best way to approach these issues, I think is 19 necessary. 20 As you said, Senator, taking a broad brush 21 towards this industry, and coming up with an 22 across-the-board solution, would be like a 23 characterizing the legislature in an unfair way for 24 the misdeeds of a very small minority of its 25 members. 1 I -- as far as we know, the data that was 2 submitted to the task force has still not been 3 analyzed. There's been no report from the task 4 force. 5 At least, we should get the benefit of that 6 that analysis and that guidance before we proceed to 7 adopt some sweeping new rules, that I think will do 8 more harm to the prudent, compliant, not-for-profit 9 organizations, and not sufficiently target the 10 actual wrongdoers. 11 So, I appreciate your consideration of my 12 testimony, and the hearing today, and I certainly 13 would be happy to answer any questions. 14 SENATOR MARCELLINO: Thank you very much. 15 It's my understanding, with the task force, 16 they're still in receiving data. 17 One of things I think that has slowed that 18 down is the volume, and the extent of the 19 questionnaire, which, as you -- as has been pointed 20 out before, was quite expensive. 21 JAMES LYTLE: Yes. 22 SENATOR MARCELLINO: The Governor, when he 23 was AG, recommended, and it became law, a 24 consolidation law. 25 We recognize there are 140,000 not-for-profit 1 entities. 2 The Governor points out, when he was AG, that 3 there are, literally, thousands of taxing entities 4 in this State, and felt that there were, perhaps, 5 too many, and, it was worth taking a hard look and 6 consolidating them, and providing a procedural 7 mechanism for consolidation. 8 Hence this, the law. 9 For record, I voted against that law. 10 Are there too many not-for-profit 11 organizations out there? 12 Should there be consolidation within the 13 fields? 14 JAMES LYTLE: I think it is incumbent on 15 every not-for-profit organization to ask itself that 16 question: Are there ways in which we could perform 17 the mission that we're asked to perform in a way 18 that would be more cost-effective, more efficient, 19 more powerful, in terms of its ultimate impact, if 20 we linked up with some other organization and did 21 it? 22 I don't know with the right number is. 23 I suspect that that is called for. 24 And the reality is, that's exactly what the 25 not-for-profit world has been doing. There has been 1 a substantial amount of consolidation. 2 And, again, I think it ultimately runs in the 3 wrong direction of the -- this executive order runs 4 in the wrong direction; will actually discourage 5 that from happening. 6 But, I do think there are some efficiencies. 7 And I -- as I say, I'm in midst of helping 8 four different organizations, in two different 9 transactions, bring their work together, here in 10 this community. 11 And, it's happening all across the state. 12 SENATOR MARCELLINO: I mentioned before, the 13 idea of making administrative costs, somehow 14 defining them, and then making them a percentage, or 15 capping them at a percentage, of the overall budget. 16 If you're going to use tax dollars, making 17 them a percentage of the overall budget. 18 What do you think about that? 19 JAMES LYTLE: Well, I think, as -- as 20 Mr. Cooney said, I think that is one of the 21 factors that could be taken into account. 22 If, actually, I think, as he suggested, 23 certainly, I would make the point that that could 24 result -- if it was used for compensation purposes; 25 that compensation should be no more than a certain 1 percentage, it could result in very excessive 2 compensation in some of these large organizations, 3 and insufficient compensation in some of the smaller 4 ones. 5 But, it is a factor. It, certainly -- there 6 is, among the different things that should be 7 considered, it seems to me, a legitimate factor. 8 The complicating fact -- or, the complicating 9 nature of this issue, is that there's a lot of other 10 issues that have to be consider as well. 11 Perhaps most significantly: What does it 12 take to recruit someone, looking at the for-profit 13 and not-for-profit world, to lead an organization of 14 the sort that we're discussing? -- whether it's a 15 university; a comp -- comprehensive health system 16 that may extend over an entire region, have a number 17 of hospitals as part of it; or some other equally 18 complex organization. 19 And I think that is the other missing element 20 to take into account, which is what the IRS 21 guidelines are intended to do. 22 So, what is it that it takes to hire a 23 qualified person to perform these responsibilities, 24 taking into account, if there's some specific 25 professional licensure, or other requirements that 1 the job, essentially, entails? 2 I take the risk of responding on behalf of an 3 organization that hasn't asked me to, that was the 4 subject of the story that Mr. Diaz -- that 5 Senator Diaz mentioned in today's "New York Post." 6 The organization receives in excess -- I 7 think it is -- it's certainly in excess of a billion 8 dollars, it may be more than a billion dollars, to, 9 basically, provide health-care services to Medicaid 10 recipients all across New York State. 11 By every evidence, over the last ten years or 12 so, the Department of Health has been convinced that 13 this organization, and organizations like it, have 14 done that in a way that's saved the State 15 significant amounts of money, and has provided a 16 better quality of health care for the people who 17 receive those benefits. 18 If you weren't going to hire that 19 organization, and that CEO, to run the -- to provide 20 those benefits, about -- one of the few other 21 options the State would have, would be the contract 22 with a commercial, maybe a national publicly traded 23 health insurance company to do the same thing; some 24 of whom are also in the same business, and they pay 25 their executives a lot more than he's being paid. 1 And, now, it's very difficult, under these 2 circumstances, and given what Senator Diaz 3 mentioned, to feel comfortable with levels of 4 compensation that are over a certain level. 5 But the reality is, you could not recruit 6 somebody to have a job like that. 7 No similar health plan in the country pays 8 $199,000 to someone to perform that service. 9 SENATOR MARCELLINO: Go ahead. 10 SENATOR SQUADRON: Thank you very much for 11 your thoughtful testimony, and I do have to say, 12 that some of, I think, the most important 13 organizations in the state, you're here on behalf of 14 today. 15 So, I appreciate that. 16 And as I said a couple of times today, you 17 know, I think, that as you look at this list, our 18 state would be bereft without them. 19 So, it's an important point. 20 I also appreciate that you did 21 proposal alternatives here. 22 It sounds like the hard-cap proposal that 23 came up in the last witness's testimony, or 24 answering questions, was not one that you think 25 makes a lot of sense, at whatever level it's at. 1 Is that fair to say? 2 JAMES LYTLE: I don't think so, Senator. 3 SENATOR SQUADRON: So here's the challenge, 4 though, and I think you lay it out well: 5 I think you lay out some of the real 6 challenges for the hard cap; 7 I think you lay out some of the real 8 challenges with, sort of, the structure of the 9 current executive order; 10 And you then lay out a third option. 11 I think one of the problems with the third 12 option, is, as you point out in your testimony, 13 there are 27,000 of these organizations in the 14 state. 15 You know, the attorney general, we've seen 16 over the last couple of administrations, not the 17 current one, extraordinarily effective, but with 18 really limited resources. 19 And as we know, the Charities Bureau really 20 is empowered to deal with some of these IRS 21 regulations, if they so chose; or to deal with 22 executive compensation during a number of other 23 provisions of State law that allowed them to oversee 24 nonprofits. 25 So, the issue here isn't really changing 1 State law, to give the attorney general power they 2 don't have. 3 The problem is, none -- so we're going to 4 have three solutions on the table, none of which get 5 at the problem here. 6 You also -- and I appreciate this -- 7 acknowledge there is a problem. 8 So, it's a little bit of a pickle. 9 JAMES LYTLE: I agree. 10 And I don't -- and I think, if there's one 11 message I'm attempting to leave, is that this issue 12 is a lot more complicated than -- than maybe -- that 13 some of the conversations in the news media would 14 suggest. 15 But I think the -- and the notion that we 16 give, both, resources, and some sort of an 17 enforcement mechanism to the Attorney General's 18 Office, to get involved in overseeing this in a more 19 effective way, is worth pursuing. 20 I'm not -- I leave it to the 21 Attorney General's Office to give us a sense of what 22 that would take. 23 It's worth noting, that the attorney general 24 already plays have very important role in approving 25 State contracts in New York. It's something which 1 the not-for-profit community sometimes complains 2 about, because of the delays that are encountered in 3 the -- along the way through the various approvals, 4 but, they have that ability. 5 If issues are raised, and the -- and, so, 6 they have that ability. 7 The information about the compensation levels 8 of every executive in the not-for-profit sector is, 9 as we've already heard, easily available. 10 So, if there is a concern about that level of 11 compensation, when that contract arrives at the 12 attorney general's desk, it doesn't strike me as 13 unreasonable to imagine a situation where the 14 attorney general then asked that organization to 15 provide it with the information -- to provide the 16 Office the information that supports that 17 compensation, determination that demonstrates that 18 the appropriate procedure was followed. 19 And, the attorney general doesn't approve the 20 contract if he or she isn't satisfied with the 21 answers to those questions. 22 SENATOR SQUADRON: Right, and I think we're 23 talking about, potentially, emptying the ocean with 24 a bucket, is one of the concerns; right? 25 JAMES LYTLE: Uh-huh. 1 SENATOR SQUADRON: And, again, you know, when 2 you look at the compensation, just of State 3 employees, whether the presidents of a -- of public 4 hospitals, or the major public authorities, or real 5 experts who work either in the SUNY system, or the 6 CUNY system, or in medical education, you know, you 7 certainly do see that even the State has 8 compensations over the 199 level. 9 You don't see -- you see some very, very 10 high-quality people working for the State, and you 11 don't see these levels that are so extraordinarily 12 high. 13 And, again, as I pointed out earlier, some of 14 these nonprofits you're talking about, being funded, 15 not, you know, at a significant level with State 16 dollars, but, essentially, every dollar coming from 17 the State. 18 And, just so I understand: It's your view 19 that, for these non-profits that are paying well 20 above what any State employee makes, including the 21 very high-level State employees that run very 22 complex, large organizations, or entities, and with 23 a great deal of expertise, that what they're doing 24 is so different, and the -- the competitive 25 environment for talent is so different, than what we 1 see at the State, that folks should be making, 2 six, seven, eight times what the same State employee 3 would be making, still being funded, you know, at 4 least, 98 percent with State dollars? 97 percent 5 with State dollars? 6 JAMES LYTLE: I think it's very difficult to 7 draw clear comparisons between these roles. 8 As someone who spent much of my prior life in 9 both the public sector and the not-for-profit 10 sector, there is a degree to which people assume 11 there is a sacrifice in doing so, as you all have, 12 obviously, also made that commitment. 13 And, it is not unreasonable to therefore 14 assume that people in either the public or 15 not-for-profit sector are not going be making the 16 same amount that they might make in other sectors. 17 I -- it's very hard, I think, to compare this 18 position to that position. 19 I think each compensation decision should be 20 very carefully scrutinized, but, on the merits of 21 that particular position. 22 And with, then, one of the questions being -- 23 maybe not only one -- but one of the questions being 24 asked, is: What does it take in the broader 25 marketplace, for people who have the skills 1 necessary to do that job, to hire someone for that 2 role? 3 And, in the not-for-profit sector, if you're 4 going make a determination to pay someone a high and 5 competitive salary to do that, it's under the 6 assumption that, somehow, they're bringing such 7 competent leadership to the organization that it 8 will pay dividends to the organization. 9 And, you know, in the classic case of the 10 college president who ends up raising more money 11 than they're possibly with being paid, or, building 12 an institution that provides the kind of education 13 and stature that the trustees have asked this person 14 to do, is -- you know, in some general sense, is 15 worth the money that they're being paid for. 16 SENATOR SQUADRON: And the "exception" 17 provision here doesn't answer that? 18 JAMES LYTLE: Well, I think I worry about 19 having a situation where, 199, or some other number, 20 is the norm; and, then, everyone lines up with their 21 request for why they deserve something more than 22 that. 23 The risk is, again, not withstanding the best 24 intentions of the folks who have to make those 25 decisions, is that the best connected, most powerful 1 interests will end up getting the waiver granted; 2 that organizations that may not be quite as well 3 connected, won't. That there won't be clear 4 criteria about how those determinations are being 5 made. 6 And, then, it just brings the State in a 7 position, I think, of micromanaging a situation 8 which, again, for the most part, we respectfully 9 would submit, isn't as broken as these proposals 10 would suggest. 11 SENATOR SQUADRON: Right; and, again, just 12 using the State payroll, and -- included in the 13 associated entities, and the City's payroll, as an 14 example: You have 2,500 people making more than 15 this threshold, in effect; you have 38 people making 16 over half a million dollars. -- in 2010. 17 So, it just seems to me -- and, again, I 18 would urge you, and everything we've heard here 19 today -- that, having a cap that has certain 20 exceptions that are pretty tightly defined, makes 21 sense here. 22 And, the reluctance to do it, I fear, is 23 about what are a very small number of organizations 24 that are paying well above what that cap would be, 25 or don't have a hard justification for it. 1 And I understand that -- you know, that, 2 sometimes, the role is to -- is to argue for the way 3 things are. And, the largest organizations, 4 obviously, have a role there. 5 But, it -- I really appreciate what you've 6 said, in terms of the concerns about recruiting 7 talent; about the ability of certain organizations 8 to overcome this, and not others. 9 I don't think that this idea that, suddenly, 10 the Charities Bureau's going to be able to look at 11 every piece of executive compensation, in detail, 12 without specific guidelines. 13 I don't think that quite passes the 14 "red face" test, although I do appreciate that it 15 was a proposal presented. 16 I think that what we see here, is, the 17 Governor's executive order sets a threshold, has an 18 "exception" provision. 19 What I've heard from you, and from others 20 today, is: Perhaps that threshold should be a 21 little bit higher, perhaps that "exception" 22 provision should be more clearly defined, but, that 23 that framework, actually, could make some sense. 24 So, I really appreciate your adding to the 25 record on this, and helping us really understand 1 this issue. 2 Thank you. 3 JAMES LYTLE: Well, just to respond, briefly: 4 I don't believe a cap, at any level, ultimately is 5 workable. 6 Not because it doesn't -- it would certainly 7 satisfy the concerns raised about certain 8 organizations, but I don't think, at the end of the 9 day, it works, that government is in a position to 10 be monitoring this question on a year-by-year basis, 11 in an effective and thoughtful way. 12 And that, ultimately, it actually, neither, 13 would provide, I think, the benefit that we're 14 seeking, or target the areas that there is the 15 greatest concern. 16 I don't think it would require -- the good 17 news is, because there aren't very many 18 not-for-profit organizations that have broken their 19 trust, I don't think the Charities Bureau would be 20 overtaxed in performing that responsibility. 21 And, there would be a -- but I do agree with 22 you, that they should -- there ought to be very 23 clear guidelines about how that ought to be done, 24 how compensation decisions are made. Make it easier 25 for both the not-for-profit world and the enforcers 1 to hold people accountable for making those 2 decisions properly. 3 SENATOR MARCELLINO: Thank you. 4 Senator Zeldin. 5 SENATOR ZELDIN: Mr. Lytle, you were 6 referring to the one ordinance -- one organization 7 that gets about a billion dollars in State support. 8 And one of the issues with having a -- 9 possibly, a for-profit handle that, is that their 10 executives would get paid even more. 11 I have a very specific question that I would, 12 just from the sake that you would even raise the 13 point, you might be able to answer. 14 Is it possible that -- that the State, by 15 using a for-profit in that particular situation, 16 despite the fact that they're paying an executive 17 more, that for-profit may do it -- may do the 18 service more efficiently so there would be a lower 19 cost to the State? 20 JAMES LYTLE: It's a very specific question; 21 and I -- 22 SENATOR ZELDIN: I understand. 23 I was referring to that one example you 24 brought up. 25 JAMES LYTLE: Right. 1 I -- you know, the evidence is -- I am 2 familiar with the field that we're talking about 3 here, in terms of, which is, essentially, 4 managed-care organizations that have accepted, and 5 operated programs on behalf of the State for 6 Medicaid beneficiaries. 7 I think the evidence is, that the 8 not-for-profit entities that are performing those 9 functions have -- 10 And I should say, by -- in the interest of 11 full disclosure, and not for the purposes of this 12 testimony, but we do represent a group of those 13 not-for-profit plans, for other purposes. 14 -- that they've actually demonstrated that 15 they have done it more cost-effectively and at 16 higher quality than their colleagues in -- on the 17 for-profit side. 18 But that -- again, it's -- I think the 19 reality is, that there is a -- what is sort of also 20 ironic about the Governor's direction, I think -- 21 And it gets to Senator Marcellino's point, 22 about the need to consolidate, generally. 23 -- the Governor's also been moving, very 24 dramatically, in the direction of having every 25 Medicaid recipient enrolled in these plans. 1 That's the direction of the Governor's 2 Medicaid Redesign Team, over a number of years. 3 So, you're going to have larger and larger 4 organizations out there that are going to accept 5 larger and larger amounts of the State Medicaid 6 dollar to perform these services, and, bear enormous 7 responsibility, to make sure that that's -- those 8 care and services are provided appropriately. 9 SENATOR ZELDIN: And just so I understand 10 your -- the answer to the question: 11 Are you stating, that, overall, that 12 not-for-profit companies going to be handling the 13 service more efficiently at lower cost to the State 14 than a for-profit would? 15 Or, are you saying that there are specific 16 components that they do more efficiently? 17 JAMES LYTLE: I think it's hard to 18 generalize, to be honest with you, in terms of an 19 answer to that question. 20 I think it's been demonstrated, that, and I 21 think the State, for good reason, has felt 22 comfortable, sometimes contracting with 23 not-for-profit mission-driven organizations, even to 24 perform things that a for-profit organization is 25 qualified, and often provides, and quite properly. 1 But, sometimes, I think the State properly 2 decides that having a mission-driven, often 3 provider-sponsored, not-for-profit organization to 4 perform those services is a better judgment call, in 5 the long run, to make sure that the patients' needs 6 are being adequately met. 7 But I -- I don't know that it's possible to 8 compare, across the board, whether not-for-profit 9 organizations are more or less efficient in doing 10 that than for-profits. 11 I think they've shown themselves to be quite 12 efficient in doing so. 13 I'm just not sure what the -- you know, what 14 the comparison would ultimately tell us. 15 SENATOR ZELDIN: Thank you. 16 SENATOR MARCELLINO: Thank you very much, 17 Mr. Lytle. 18 JAMES LYTLE: Thank you. 19 SENATOR MARCELLINO: Appreciate your time; 20 appreciate you coming down. 21 Our next, and final, speaker will be, 22 Jayne Cammisa, who is a registered nurse. 23 JAYNE CAMMISA: Hello. 24 SENATOR MARCELLINO: Good afternoon. 25 JAYNE CAMMISA: My name is Jayne Cammisa, and 1 I represent -- 2 SENATOR MARCELLINO: Could you please move 3 the microphone closer to you so that everybody in 4 the back can hear you. 5 JAYNE CAMMISA: Sure. 6 My name is Jayne Cammisa, and I represent a 7 different group. 8 I represent the employees of the 9 not-for-profits; and I have a very different 10 perspective than the eloquent speakers that spoke 11 before me. 12 I am a registered nurse at 13 Westchester Medical Center, and I am also a proud 14 member of the New York State Nurses Association. 15 And I really thank you for allowing me this 16 opportunity to speak in regards to the exorbitant 17 executive salaries in some of the New York State 18 hospitals and nursing homes. 19 According to the 2009 financial reports: 20 Westchester Medical Center Chief Executive 21 Officer Michael Israel was paid $1.2 million; 22 Our chief operating officer, Gary Brudnikie, 23 was paid $738,000; 24 While 36 other executives were paid between 25 128,000 and 530,000 dollars. 1 Wouldn't some of this money be better spent 2 on cultivating a stable RN workforce to provide 3 quality patient care; the very patients, the very 4 members, that all these nonprofits serve? 5 In the middle of our contract negotiations 6 this past October, the Nursing Association received 7 notice that the facility would be eliminating 8 250 RN positions. An estimated 139 of these 9 positions were nurses who work at the bedside. 10 I work at the bedside. I've worked at the 11 bedside for 25 years. 12 Other planned layoffs will affect direct-care 13 providers, such as, nurse practitioners, clinicians, 14 specialists, and physicians, that provide support, 15 such as, manager, supervisors, coordinators, and the 16 entire education department of our facility. 17 We are a Level I Trauma teaching hospital. 18 This is a staggering 19 percent cut to the 19 direct-care nursing workforce at Westchester Medical 20 Center, and it is simply too much for the remaining 21 staff to bear. 22 RNs are already reporting that they're 23 working short-staffed, and many have been doing so 24 since the layoffs at the medical center in 2003 and 25 2004. 1 Staffing levels are an issue of concern 2 because studies have linked poor staffing with 3 higher incidents of adverse patient outcomes. 4 My colleagues and I cannot comprehend why 5 those at the bedside are being sacrificed while some 6 executives continue to line their pockets at 7 taxpayer expense. 8 The executives of our facilities need to do 9 the right thing. 10 The executives of every nonprofit health-care 11 organization have to do the right thing. 12 What kind of message does this send, not only 13 to the whole staff, but to the patients we serve, 14 and the community as a whole. 15 Even in current contract negotiation, 16 Westchester Medical Center management is 17 aggressively seeking cuts to nurses' benefits and 18 wages, while refusing to commit to severe cuts in 19 management salaries and benefits, or to discuss 20 millions spent on outside contracts. 21 Our negotiating committee, which I serve on, 22 offered $9 million in various givebacks to our 23 employer, only to be told we didn't work hard enough 24 on our proposal. 25 Westchester Medical Center faces the same 1 dilemma as many health-care facilities in 2 New York State; yet, others haven't made cuts to 3 this magnitude. 4 Westchester Medical Center has the highest 5 case-mix index in the country, and is the only burn 6 unit between New York City and the Canadian Border. 7 It is also the only Level I Trauma Center -- 8 Sorry. 9 -- between New York City and Albany, 10 supporting patients from seven counties. 11 Having committed high-quality, high-credible 12 nurses at the bedside is vital to the survival of 13 the patients, and to this important institution. 14 Layoffs at my facility will severely impact 15 the safety and delivery of quality care, not only in 16 Westchester, but the entire Hudson Valley. 17 Recently, Governor Cuomo said the 18 not-for-profits that provide services to the poor 19 and needy, which we do, must work to prevent public 20 funds from being diverted to excessive compensation 21 and unnecessary administrative costs. 22 The Governor issued an executive order that 23 would cap both executive compensation and 24 administrative costs by paid by the State to 25 nonprofits and for-profit service providers. 1 My colleagues and I at Westchester Medical 2 Center and the New York State Nurses Association 3 applaud the Governor, and this Committee, for 4 working to keep nonprofit executives accountable for 5 their salaries, and better align themselves for the 6 not-for-profit missions. 7 I really thank you for letting me speak. 8 SENATOR MARCELLINO: We thank you for coming, 9 and we thank you for the message that you're 10 delivering. 11 There are a number of proposals out there to 12 cap executive salaries at hospitals. 13 Is there any particular one that your 14 association supports? 15 JAYNE CAMMISA: Is there one that we support? 16 Christine LaPerche is here, from the thing. 17 I support the nurses that do the work. 18 I support anything that keeps with the 19 mission statement. 20 CHRISTINE LA PERCHE: Basically, we support 21 the present -- 22 SENATOR MARCELLINO: Can you move the 23 microphone closer to you. 24 CHRISTINE LA PERCHE: What we're saying is, 25 there needs to be a start, somewhere; and this cap 1 is the start. 2 So, we're in support of there being a cap. 3 Can we speak to the capped amount? 4 I think the 199 is a good beginning. 5 SENATOR MARCELLINO: I have -- what you're 6 saying about the administrative salaries, I have a 7 bill that we're currently looking at, towards 8 education, dealing with capping administrative costs 9 as a percentage of the overall school district's 10 budget. 11 Same question I've asked of some of the other 12 speakers: How do you feel about that, with respect 13 to not-for-profits? 14 Administrative costs; instead of capping an 15 individual's salary per se, but capping overall 16 administrative costs as a percentage of your budget, 17 that the State could live? 18 How about that? 19 JAYNE CAMMISA: I think we'd support that. 20 CHRISTINE LA PERCHE: We agree. 21 SENATOR MARCELLINO: Thank you very much. 22 Senator? 23 SENATOR SQUADRON: Thank you very much for 24 being here, and for your testimony and perspective. 25 Just, do you know the starting salary for a 1 nurse at Westchester Medical Center? 2 JAYNE CAMMISA: $60,000. 3 SENATOR SQUADRON: Sixty. 4 And do you know the average? 5 JAYNE CAMMISA: If you're there for 25 years, 6 you average about $100,000. But, you have to give 7 25 years to the front line to get to that cap. 8 SENATOR SQUADRON: And -- 9 SENATOR MARCELLINO: Is that a four-year 10 degree or a two-year degree, the starting salary? 11 JAYNE CAMMISA: It could be either. 12 But, our institution is, majorily [sic], 13 they're hiring a four-year degree, bachelor of 14 nurses. 15 SENATOR SQUADRON: Right, so somewhere 16 between -- 60,000, and after 25 years of service, 17 you may break into six figures at the very end of 18 your career? 19 JAYNE CAMMISA: Yes, uh-huh, but that's after 20 25 years. Not after -- 21 Mr. Israel makes 1.2 million after 22 four years. 23 SENATOR SQUADRON: And I -- I'm aware of 24 this, and, certainly, very grateful with what nurses 25 do, but, I just want to sure, for people who are 1 thinking about it every day, we still have a nursing 2 shortage in the state, and in this country; right? 3 JAYNE CAMMISA: I believe there still is a 4 nursing shortage, but, they just laid off 5 139 experienced nurses, that are out of a job. 6 Nursing students, I precept, and I mentor, 7 students from the area colleges. They can't get a 8 job. 9 They can't get a job. They have to wait for 10 someone to retire. 11 It's harder and harder for nurses to enter 12 the field of nursing. 13 SENATOR SQUADRON: Great, so, we have a 14 situation, where we have the salary level, we have 15 sort of a national nursing shortage, and, we have 16 well-trained folks who are currently laid off and 17 don't have a job -- 18 JAYNE CAMMISA: Yes. 19 SENATOR SQUADRON: -- at the same time. 20 I really appreciate this perspective, and I 21 think it helps bring everyone down to earth a little 22 bit, about what we're really talking about here. 23 And, of course, just the final question: 24 I know that you work at Westchester Medical 25 Center, and stuff, but, you do pay taxes; right? 1 We're talking about -- 2 JAYNE CAMMISA: I am -- 3 SENATOR SQUADRON: -- your tax dollars 4 funding your boss? 5 JAYNE CAMMISA: I am -- have been a 6 Westchester County resident for my whole married 7 life: 23 years. And, before that, Putnam. 8 I've lived in New York State my entire life. 9 I pay my taxes. 10 I -- I speak for the taxpayers: I think this 11 is outrageous, how much money they make. 12 SENATOR SQUADRON: Well, I thank you for your 13 perspective, both, as a front-line worker at a 14 New York nonprofit, and also as a taxpayer. 15 Thank you very much. 16 SENATOR ZELDIN: Thank you. Great testimony. 17 SENATOR MARCELLINO: Thank you very much, 18 ladies. 19 That closes the Committee hearing. 20 The Committee will review all testimony that 21 was given today, and a written report will be issued 22 shortly, on the issue of the State to reform 23 compensation oversight. 24 And, we want to thank the Senators for 25 attending; 1 The camera crew for working here, and the 2 technical people; 3 The Committee staff, Beth Keliher [ph.] and 4 Rob Parker. 5 And, once again, for all of those who 6 attended, and those who participated with testimony, 7 written, and all. 8 Thank you. 9 Meeting adjourned. 10 11 [Whereupon, at 1:09 p.m., the public 12 hearing, held before the New York State Senate 13 Standing Committee on Investigations and 14 Government Operations, concluded.] 15 16 ---oOo--- 17 18 19 20 21 22 23 24 25