Schneiderman, legislative leaders and advocates celebrate passage of reform to NY's charities laws

Act represents first major reform to New York's charities laws In more than 40 years

Attorney General Eric T. Schneiderman, joined by State Sen. Michael Ranzenhofer (R-Amherst), Assemblyman James Brennan (D-Brooklyn) and nonprofit leaders from across the state, celebrated Friday's passage of sweeping, bipartisan legislation to overhaul the laws governing New York's nonprofit sector. The attorney general's Nonprofit Revitalization Act represents the first major overhaul to New York's charities laws in more than 40 years. The bill, Schneiderman's camp said, includes substantial reforms that will cut red tape while enhancing governance and oversight of nonprofits. The A.G.'s bill was sponsored by Ranzenhofer and Brennan, and it passed unanimously in both the Senate and Assembly.

Nonprofit organizations operating in New York generate hundreds of billions of dollars in annual revenue - the highest of any state in the nation - and are responsible for one in seven jobs in New York state. Yet the lingering recession and slow economic recovery present unprecedented strategic challenges for nonprofits. The public's trust in the nonprofit sector has also been tested, as stories of public officials and others abusing charities have emerged. The A.G.'s bill, he said, will make New York competitive with other states in continuing to attract and nurture the most vibrant nonprofits in the world, and it will make New York a model for nonprofit governance and oversight.

"New York's nonprofit sector rivals any in the nation, providing crucial services to families and institutions across the state," Schneiderman said. "But for too long, it's been hamstrung by red tape in some areas, and lacked oversight in others. (Friday's) vote, the first reform to our charities law in decades, will allow charities to do what they do best: powering our economy, supporting vulnerable citizens and our most treasured institutions. I am grateful to Sen. Ranzenhofer, Assemblyman Brennan, Majority Leader Skelos and Speaker Silver for their leadership in guiding this bill to passage. I also thank the New York State Bar Association and countless nonprofit organizations that have worked for years to see this day."

Schneiderman's bill is the product of more than two years of work by the A.G.'s office, and a year of legislative deliberation and negotiation. Shortly after taking office, Schneiderman convened a first-of-its kind leadership committee on nonprofit revitalization, a group consisting of 32 leaders of nonprofit organizations large and small from across the state. Last year, the committee issued a comprehensive report to the A.G. that included 38 concrete recommendations to revitalize and renew New York's nonprofit sector. A copy of the leadership committee's report is available here. The committee's recommendations formed the basis of the A.G.'s Nonprofit Revitalization Act. Chief of the Attorney General's Charities Bureau Jason Lilien, with Senior Advisor and Special Counsel to the Attorney General James Katz and Senior Legislative Counsel Justin Berhaupt, led efforts on behalf of the A.G. to draft and negotiate the bill.

The Nonprofit Revitalization Act makes a number of key reforms to New York law that have long been sought by the charitable sector and legal practitioners. Nonprofit organizations will now be able to incorporate, dissolve and merge more easily; communicate and hold meetings using modern technology like Skype and videoconference; and enter transactions without having to go to court. At the same time, the bill includes crucial oversight and governance reforms that will help protect taxpayer dollars and preserve public trust. Nonprofit boards will have to perform stricter oversight of insider deals, and the A.G. will be better able to hold insiders accountable for abuse. The bill requires the adoption of more robust financial oversight requirements, conflict of interest policies, and whistleblower policies to protect nonprofit employees from retaliation when they identify wrongdoing. A summary of the bill's provisions is included below.

Ranzenhofer, chair of the Senate Corporations, Authorities and Commissions Committee, said, "I am very proud of (Friday's) accomplishment. The passage of the Nonprofit Revitalization Act represents government at its best. Through the public hearings my office held across the state and Attorney General Schneiderman's Nonprofit Revitalization Committee, we engaged nonprofit leaders directly and crafted meaningful reforms that make sense in the real world. This is a model that should be replicated in all areas of policymaking, and I am grateful to Attorney General Schneiderman and Assemblyman Brennan for their partnership in this process."

Brennan, chair of the Assembly Committee on Corporations, Authorities and Commissions, said, "Passing reform this sweeping is no small task. Attorney General Schneiderman is to be commended for bringing all of the interested parties together to develop these comprehensive and forward-looking proposals. Speaker Silver and Majority Leader Skelos also deserve our thanks. The reform of the state's not-for-profit corporation law was much needed and long-overdue. This legislation represents the right balance between ridding the current law of unnecessary and burdensome requirements, strengthening the governance structures of nonprofit corporations and enhancing oversight over them. Charitable organizations and the thousands of New Yorkers that benefit from their work are better off today."

Assemblywoman Helene Weinstein, chair of the Assembly Judiciary Committee, said, "Once the Nonprofit Revitalization Act is signed into law, nonprofits and the courts will instantly benefit from modernized, streamlined processes. The heavy, unnecessary burdens of multi-level reviews of nonprofit transactions by government will be alleviated, without sacrificing crucial oversight. As a result, nonprofits and the courts can focus time and resources serving the public. I applaud the attorney general, Assemblyman Brennan, and Sen. Ranzenhofer on this historic achievement."

Susan Hager, president and CEO of the United Way of NYS, said, "The bipartisan proposals contained in the Nonprofit Revitalization Act have been a long time coming. They strike the right balance in achieving comprehensive modernization of state law to assist charitable organizations, and requiring common sense board of directors oversight to ensure donor confidence. This process has been a model of policymaking transparency. The bill is the product of a task force of legal and philanthropic experts convened by Attorney General Schneiderman that I was proud to co-chair. The significant reforms in this bill are also the result of leadership by the attorney general and the Legislature to engage in an extensive dialogue with the nonprofit community. We also commend Sen. Michael Ranzenhofer for holding statewide public hearings, and Assemblyman James Brennan for his strong support and negotiations in good faith. We urge the governor to sign this bill into law as soon as possible."

Michael Stoller, Executive Director of the Human Services Council of New York, said, "The Human Services Council, representing the nonprofit human services sector in New York, is a long-time advocate of reform in the way New York state monitors and does business with the sector. We deeply appreciate the work of Attorney General Schneiderman, Sen. Ranzenhofer, Assemblyman Brennan and their staffs in generating the political will to take this important step toward a more rational and efficient framework for governing nonprofits. We look forward to working with them, as well as with the governor and the comptroller, on further improvements."

Marylou Borowiak, president and CEO of the Food Bank of Western New York, "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. We look forward to seeing it signed into law."

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 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.

•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.

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.