New York State Agencies Again Revise Proposed Regulations Limiting Use Of State Funds For Administrative Expenses And Executive Compensation By Service Providers As Of July 1, 2013

Implementing Executive Order 38 issued by Governor Cuomo early in 2012, thirteen New York State agencies have again released revised proposed regulations placing a limit on the funds that can be used for administrative expenses and executive compensation by entities, both for-profit and not-for-profit, that receive state funds or state-authorized payments to provide services. These regulations were previously released in proposed form and modified in response to public comments in May and October of 2012. The third version of the proposed regulations was published in March 2013 and is open to public comment until April 12. They are written with an effective date of July 1, 2013. At the same time, the agencies issued responses to the public comments to the prior proposed regulations that were intended to clarify government positions.

As we discussed in our alert on the previous proposed regulations, subject organizations should begin to prepare for compliance. This alert outlines the most recent changes to these regulations.

Summary of Key Changes from October 2012 Proposed Regulations

Although the regulations are scheduled to go into effect on July 1, limits on administrative expenses and executive compensation are not effective until the "first day of each provider's respective reporting period." Thereafter, the reporting period is defined at either the calendar year or the fiscal year used by the covered provider for financial-reporting purposes, at the provider's option, unless the provider files an annual cost report with the state. The definition of "executive compensation" has been broadened to include distributions to shareholders or partners when such distributions represent compensatory or guaranteed payments. The definition of "administrative expenses" and "program services expenses" now exclude "that portion of the salaries and benefits of staff performing policy development or research," which will result in expenses qualifying as such to not count toward a covered provider's maximum allowable expenditures on administrative expenses. Although the limits on administrative expenses and executive compensation still apply to subcontractors and agents of covered providers to the extent that they received state funds, the revised regulations expressly state that a covered provider "shall not be held responsible for a subcontractor's or agent's failure to comply with these regulations." A covered provider must incorporate the...