Schneiderman, Senate and Assembly committee chairs propose groundbreaking legislation to reform New York's charities laws

Legislation introduced by sens. Ranzenhofer and Marcellino, Assembly members Brennan, Weinstein and Englebright

Attorney General Eric T. Schneiderman today joined senators Michael Ranzenhofer and Carl Marcellino and Assembly members Jim Brennan, Helene Weinstein and Steve Englebright in proposing sweeping, bipartisan legislation to overhaul the laws governing New York's nonprofit sector.

The product of more than a year of legislative deliberation and negotiation, the Nonprofit Revitalization Act and the Executive Compensation Reform Act would be the first major reforms to the state's charities laws in more than 40 years. Together, they would make New York a model for nonprofit governance in the country, while cutting unnecessary red tape to better enable nonprofits to perform.

"Nonprofit organizations provide critical services to New Yorkers across the state and represent a powerful engine for economic growth and stability," Schneiderman said. "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. Our goal is to revitalize New York's charitable organizations and, at the same time, put a stop to the financial abuses that have come to light. I am grateful to senators Ranzenhofer and Marcellino and Assembly members Brennan, Englebright and Weinstein for their leadership and commitment to reform."

Nonprofit organizations operating in New York generate hundreds of billions of dollars in annual revenue and are responsible for one in seven jobs in the state. The lingering recession and slow economic recovery, as well as a continuous series of weather-related disasters, present unprecedented financial, strategic and governance challenges for nonprofits. At the same time, the public's trust in the nonprofit sector has eroded, as stories of public officials and other people abusing charities have been uncovered.

Schneiderman first proposed charities reform last spring, just before the close of last year's legislative session. Over the past 12 months, key committee chairs in both houses of the legislature and the attorney general have worked closely with stakeholders in the nonprofit community to strengthen the reforms and shape the legislation being introduced today.

The Nonprofit Revitalization Act (S.5198) is being sponsored by Sen. Ranzenhofer (R-Amherst) and Assembly members Brennan (D-Brooklyn) and Weinstein (D-Brooklyn). The Executive Compensation Reform Act (S.5197) is being sponsored by Sen. Marcellino (R-Suffolk/Nassau) and Assemblyman Englebright (D-Suffolk)

"Our charities laws have not been updated in over 40 years, and it shows," said Ranzenhofer, chair of the Senate Corporations, Authorities and Commissions Committee. "The time is right to cut the red tape and make New York a truly business friendly environment for nonprofits. The need to reform governance and oversight is also clear. I look forward to working with the attorney general in proposing these comprehensive, common-sense reforms, and I urge my colleagues in the Senate to work with us to pass them before the close of this session."

Brennan, chairman of the Assembly Committee on Corporations, Authorities and Commissions, said, "We've tried several times in recent years to reform our charities laws. This time is clearly different. The charities community, regulators, and the legislature all understand that the need for reform is crucial. The burdens New York law places on nonprofits are too high, and the need for clearer guidance on governance is great. Attorney General Schneiderman is to be commended for bringing all of the interested parties together to develop these comprehensive and forward-looking proposals. I look forward to working with the attorney general, the speaker, and my colleagues in the Assembly to pass these reforms this session."

Weinstein, chairwoman of the Assembly Judiciary Committee, said, "New York unnecessarily burdens nonprofits by requiring multi-level reviews by government, including the courts. 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."

Englebright, chairman of the Assembly Government Operations Committee, added, "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. The attorney general's Executive Compensation Reform Act is exactly that kind of solution. I support it and will push for its passage."

Susan Hager, president and CEO of the United Way of New York State, said: "This legislation results from a study by a task force of legal and philanthropic experts, convened by the attorney general, that has been open for public discussion and review for over a year - a model of policymaking transparency. These bipartisan proposals strike the right balance in two important ways: by achieving a comprehensive modernization of state law to assist charitable organizations, and requiring common sense board of directors oversight and governance so as to ensure donor confidence."

Marylou Borowiak, president and CEO of the Food Bank of Western New York, said: "The Food Bank of Western New York is in strong favor of nonprofit laws that promote good governance practices and improve oversight. We applaud Attorney General Schneiderman's leadership on this issue and Sen. Michael Ranzenhofer's sponsorship of this important legislation."

Clotilde Perez-Bode Dedecker, President and CEO of the Community Foundation for Greater Buffalo, said, Attorney General "Schneiderman's bill is the product of the Leadership Committee for Nonprofit Revitalization, which I was proud to co-chair. The attorney general's committee was a first-of-its kind chance for New York's nonprofit organizations - upstate, downstate, large and small - to make their voices heard in reshaping New York's charities laws. I commend Attorney General Schneiderman for facilitating the open and inclusive process in which these reforms were developed."

The Nonprofit Revitalization Act is based upon recommendations from the attorney general's committee on nonprofit revitalization, a group Schneiderman convened in April 2011 consisting of 32 leaders of nonprofit organizations large and small from across the state.

The nonprofit revitalization committee's report is available here:www.ag.ny.gov/sites/default/files/press-releases/2012/NP%20Leadership%20Committee%20Report%20%282-16-12%29.pdf.

Summary of the Nonprofit Revitalization Act

1. The Nonprofit Revitalization Act will bring reform in two main areas:

• Enhancing nonprofit governance and oversight to prevent fraud and improve public trust; and

• Reducing unnecessary and outdated burdens on nonprofits.

 

1. The Nonprofit Revitalization Act will give New York the strongest nonprofit governance regime in the country. These bills will:

• Ensure sound financial management by requiring that charities' boards perform active oversight over financial audits. Boards will be responsible for retaining independent auditors and reviewing results of the audit. At larger charities (more than $1 million in annual revenue), the board or audit committee will be required to follow additional oversight procedures.

• Prevent conflicts of interest by requiring that transactions between a nonprofit and insiders who stand to benefit be fully disclosed and that nonprofit boards determine they are fair, reasonable, and in organizations' best interests. When a charity engages in a substantial transaction with an insider, the board will have to consider alternatives and document its basis for choosing the insider transaction.

• Strengthen the attorney general's power to police fraud and abuse by granting clear power to bring judicial proceedings to unwind interested-party transactions.

• Ensure board independence by prohibiting any employee of a nonprofit from also serving as chair of its board.

• Promote good governance by requiring all nonprofits to adopt conflict of interest policies and those with more than $1 million in annual revenue and 20 or more employees to adopt whistleblower policies.

 

1. Attorney General Schneiderman's Nonprofit Revitalization Act will also streamline and modernize New York law to remove unnecessary burdens, save taxpayer dollars, and help nonprofits focus resources on providing services by:

• Streamlining procedures for nonprofit mergers, property sales and corporate dissolutions, so that funds needed for ongoing charitable programs are not wasted on unnecessary red tape;

• Modernizing laws to allow nonprofits to conduct their affairs more efficiently, such as permitting nonprofits to use email and video technology for meetings and allowing boards to delegate the approval of small transactions to committees; and

• Eliminating unnecessary and costly requirements for nonprofits forming in New York, saving nonprofits money and time and allowing them to commence charitable programs more quickly.

Summary of the Executive Compensation Reform Act

The Executive Compensation Reform Act will:

1. Rein in excessive compensation by requiring that boards of nonprofits review compensation and determine it is fair, reasonable and justified. All organizations will have to review and approve CEO compensation.

• Require additional oversight at large organizations: Charities with annual revenue of more than $2 million will also have to review the compensation of the top five highest paid officers or key employees and compare it to that paid at similar organizations.

This matter is being handled by assistant attorneys general Justin Berhaupt and James Katz, under the supervision of Charities Bureau Chief Jason Lilien and First Deputy for Affirmative Litigation Janet Sabel.