New York Attorney General Eric Schneiderman on Thursday proposed broad changes to the way New York nonprofits are governed that could reduce the financial and operational burdens on the sector.
Nonprofits—which employed 1.2 million people, or nearly one of every five people in the state’s private sector in 2010—have been struggling with record demand for services at a time of government cuts and weak fundraising.
The attorney general’s proposals, which he unveiled at a Crain’s breakfast forum, include 38 recommendations to help ease the financial and bureaucratic strains on nonprofits—which are often paid late by government—while at the same time strengthening oversight of the sector.
Despite the longtime problems plaguing nonprofits, not much has been done to reform their oversight and governance.
“This is something that has been lingering for decades,” Mr. Schneiderman said.
While nonprofits need to be better served by government, they also need to become more transparent themselves. Recent revelations of “inappropriate” compensation for nonprofit executives have heightened concerns about board oversight and independence, said a report by a task force assembled by the attorney general of nonprofit executives and his own staff.
Gov. Andrew Cuomo last month signed an executive order capping the amount of state money that may pay for a nonprofit executive’s salary and benefits at $199,000.
Mr. Schneiderman refused to say before specific regulations are developed whether he endorsed Mr. Cuomo’s position, only that setting “benchmarks and parameters is important” as opposed to “a hard cap.”
“If you have people making $40,000 a year but not doing anything, that’s not good either,” he said.
The attorney general hopes to amend state law to require that independent directors make an annual affirmative determination that compensation paid to those in the executive suite is reasonable and commensurate with their jobs.
The law should also be amended to mandate that boards of nonprofits perform the audit committee function if they are required to obtain annual external financial audits.
In addition, to promote independent board leadership, New York law should prohibit the CEO and other compensated employees from chairing the boards that oversee the paid staff, the report said. Policies should be implemented stating what percentage of the board must be independent, and the criteria for determining independence.
Observers embraced Mr. Schneiderman’s proposal to cut red tape.
“I know how difficult it is to set up a nonprofit through the state,” said Fred Rooney, director of the Community Legal Resource Network at CUNY. “An application gets bounced back on the slightest technicality. Any attempt to streamline the process will be really well received by people starting nonprofits.”
For many nonprofits, especially those in the social services sector, the bulk of their work stems from state contracts. As of October 2011, New York state had 22,000 active contracts with nonprofits totaling $16.8 billion in services in a wide variety of areas such as homelessness, child welfare and emergency relief. Yet in 2010 alone, state contracts valued at $1.8 billion were paid late.
Another proposal is to create an Office of Contracting Reform and Accountability to centralize reporting functions currently housed across multiple agencies. The office would streamline contracting processes, hold funding agencies accountable, improve transparency and provide support and training to nonprofits. It would also direct state agencies to improve the contracting process, moving to standardized and multi-year contracts.
If contracted payments are delayed, the state would be expected to provide interest-free loans to nonprofits so they wouldn’t have to cut back services and furlough workers, or pay interest on lines of credit from banks. The state established a revolving loan fund for that reason but never capitalized it.
In addition, the report calls for the creation of a website allowing nonprofits to track the status of requests for proposals, contract approvals, renewals, payments and audits.
The recommendations also called for a new initiative with New York’s business community called New York on BOARD, to help build a pipeline of future nonprofit trustees. Companies would be asked to encourage and sponsor board service by their employees with special efforts made to identify candidates with diverse backgrounds and experiences.
Mr. Schneiderman in July appointed his task force, called the Attorney General’s Leadership Committee for Nonprofit Revitalization. The group, which includes high-level nonprofit executives such as William Rapfogel, CEO of the Metropolitan Council on Jewish Poverty, and Karen Brooks Hopkins, president of the Brooklyn Academy of Music, was tasked with developing proposals to make New York a place where nonprofits can flourish while maintaining public trust in the sector.
The report is the beginning of a partnership between the nonprofit industry and the attorney general’s office. The committee of nonprofit leaders recommended that the attorney general convene conferences with nonprofit leaders to develop a blueprint for the future.