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AG, lawmakers team up to reform nonprofits



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Attorney General Eric Schneiderman has announced two pieces of legislation aimed at reforming not-for-profit organizations. Both pieces of legislation are sponsored by members of the Senate and Assembly. Photo by AP.
May 20, 2013
Attorney General Eric Schneiderman joined forces with members of the state Legislature in the hopes of passing two bills that would drastically reform New York's not-for-profit sector.

The two bills include the Nonprofit Revitalization Act (A.7337/S.5198) and the Executive Compensation Reform Act (A.7338/S.5197).

"Nonprofit organizations provide critical services to New Yorkers across the state and represent a powerful engine for economic growth and stability. We must work together with the nonprofit community to cut red tape while strengthening governance and oversight and that's exactly what this legislation does," Schneiderman said in a press release announcing the bills.

Not-for-profit organizations can raise hundreds of billions of dollars in revenue and, according to Schneiderman, are directly responsible for one in seven jobs in New York state.

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He acknowledges that nonprofits have faced many challenges in the last few years due to "the lingering recession, slow economic recovery, weather-related disasters, and unprecedented financial, strategic and governance challenges." The recent string of public officials being convicted, charged or accused of public trust violations, it is noted, has not helped the nonprofit sector either.

The Nonprofit Revitalization Act, sponsored by Assemblyman Jim Brennan, D-Brooklyn, and Sen. Michael Ranzenhofer, R-Amherst, was designed to enhance nonprofit "governance and oversight" in an effort to discourage fraud and simultaneously reinforce the public's trust in state Legislature.

One of the provisions listed in the bill language aims to amend a section of the Not-for-Profit Corporation Law that would clarify in clearer terms that any compensation paid to members, directors, officers or key employees must be "fair, reasonable and commensurate with services provided to the corporation."

"A few egregious cases of excessive compensation have made it clear that we need improved laws to govern compensation across the entire nonprofit sector. [Schneiderman] has put forward a sensible, flexible approach that places the onus on active board oversight, while taking into account diverse sizes of organizations and minimizing burdens on smaller ones," Sen. Carl Marcellino, R-Syosset, chair of the Senate Government Operations Committee and co-sponsor of the Senate bill, said in a press release.

Another provision amending the Corporation Law would require whistleblower policies to be put into practice if the organization has annual revenue exceeding $1 million and has 20 or more employees. Additionally nonprofits would be required to create "conflict of interest policies."

Boards of the nonprofits will be required to take more of an active role in oversight of financial audits. It will be obligatory for them to retain independent audits of their organization and ensure that if the organization in question procures over $1 million in annual revenue, that additional oversight procedures must also be performed.

Assemblywoman Helene Weinstein, D-Brooklyn, chair of the Assembly Judiciary Committee and co-sponsor of the Assembly bill, said in a press release that reforms dealing with oversight are essential in this bill.

"New York unnecessarily burdens nonprofits by requiring multi-level reviews by government, including the courts," Weinstein said. "Procedures must be streamlined without sacrificing oversight so that nonprofits and the courts can focus time and resources on their core missions. It is important to enact legislation to accomplish these goals."

The second bill, the Executive Compensation Reform Act, works hand-in-hand with the Nonprofit Revitalization Act by making it a requirement, if passed, for boards of nonprofits to review compensation and determine if the level of compensation is justified.

The bill requires that compensation is "fair, reasonable and commensurate with services provided and that boards of larger nonprofits follow particular procedures in determining that compensation meets the standard," as stated in the bill language.

Additionally it would create a new section within the state's Estates, Powers and Trusts Law making these changes with determining compensation levels the same within charitable "trusts" rather than solely defined as being newly implemented within "charitable corporations."

"Excessive pay in any sector is a problem, but at charities that act in the public interest, it is an even bigger concern. At the same time, most nonprofit employees aren't overpaid — they are underpaid. We need common sense solutions that will rein in abuse but do not overburden small agencies that perform vital public services," Assemblyman Steve Englebright, D-Setauket, sponsor of the Assembly bill and chair of the Assembly Government Operations committee, said in a press release.

If these bills are passed they would be the first enacted reforms to New York state's charity laws in over 40 years.

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