There were a lot of positive reactions to Governor Andrew Cuomo’s presentation on January 17th of his Executive Budget proposals for FY2012-13.   With a mere $2 billion deficit to cut – down from $10 billion last year – the pain levels for nonprofit human service providers generally seemed to be more manageable, at least at first glance and in relative terms.  And, it appeared that the pain was being shared more evenly, based in large part on a newly enacted State personal income tax structure which muted calls for a “Millionaires’ Tax” that had dominated much of last year’s budget debate.

“We are pleased that the Governor adopted a fair and balanced approach to reducing the budget deficit, meaning he did not seek to balance the budget by targeting services that primarily assist low-income and vulnerable New Yorkers,” said Nancy Wackstein, Executive Director of United Neighborhood Houses.

Governor Cuomo emphasized that his proposed budget was also a “Reform Plan” for New York State government.  Many of these reforms of governmental operations are likely to impact nonprofit service providers directly.  He called for merging a number of state agencies, rationalizing and consolidating programs, and revamping and streamlining the procurement and grants management process.

“The Governor’s FY13 Executive Budget recommends many administrative improvements that will assist the delivery of human services though some concerns in key service areas remain,” said the Human Services Council of New York (HSC).

No COLAs

Among the painful measures which the Governor did propose is an elimination of automatic Cost of Living Adjustments (COLAs) in all human service program contracts for FY2012-13.  Many programs had anticipated a 3.6% COLA “trend factor” in program budgets or rate calculations.   HSC puts the total anticipated cost to providers of this loss of COLAS at $160 million.

“This is the fourth year in a row that the State has deferred promised Cost of Living Adjustments (COLAs) for nonprofit human service provider agencies,” said Allison Sesso, Deputy Executive Director at HSC. “These are the people bringing meals to seniors, counseling victims of domestic violence, housing the homeless, fostering abused children, feeding the hungry, bathing the disabled, providing care for children, and performing many other jobs that meet the human needs of people throughout the state. To not provide a minor increase of 3.6% after three years without an increase and no prospect of future increases will damage the sector’s ability to provide quality services.”

“A lot of programs haven’t been receiving COLAs anyway,” said Harvey Rosenthal, Executive Director of the New York Association of Psychiatric Rehabilitation Services (NYAPRS).  “I guess this levels the field.”

Looking ahead to FY2013-14, Cuomo proposed to replace automatic COLAs with “increases based on appropriate provider costs and meeting performance outcomes.”

“At the moment, we do not have any information on how this system will be structured or how it will operate,” says Sesso.

Executive & Administrative Compensation

In another controversial, but much anticipated move, the Governor’s Budget presentation proposed to limit state reimbursement to providers for executive compensation and administrative costs.

“One-third of the State budget goes to non-profit and for-profit agencies to provide services on behalf of the State,” said the Governor.  “However, there are inadequate controls to protect against excessive executive compensation, administrative costs, and profit.”

The Governor called for and proposed legislation that would require:

•    At least 85 percent of every public dollar to be spent on direct services, not administration.

•    Reimbursement for any executive’s compensation to be capped at $199,000.

•    Excess compensation to be a basis for rejection of a provider.

Only a day later, however, the Governor moved unilaterally in the form of an Executive Order directing commissioners “to promulgate regulations, and take any other actions within the agency’s authority including amending agreements” to address the extent and nature of a provider’s administrative costs and executive compensation eligible for reimbursement.  Commissioners are to take these actions within 90 days.

Interestingly, the Executive Order appears to call for regulations to be written in such a way that the onus for ensuring that they are not reimbursed at levels above the caps falls on the providers themselves.

“Each such agency’s regulations shall include but not be limited to requirements that providers of services that receive reimbursements directly or indirectly from such agency must comply with the following restrictions,” the Executive Order states.

“No less than seventy-five percent of the State financial assistance or State-authorized payments to a provider for operating expenses shall be directed to provide direct care or services rather than to support administrative costs, as these terms are defined by the applicable state agency in implementing these requirements. This percentage shall increase by five percent each year until it shall, no later than April 1, 2015, remain at no less than eighty-five percent thereafter.

“To the extent practicable, reimbursement with State financial assistance or State-authorized payments shall not be provided for compensation paid or given to any executive by such provider in an amount greater than $199,000 per annum provided, however, that the commissioner of each agency shall have discretion to adjust this figure annually based on appropriate factors and subject to the approval of the director of the budget, but in no event shall such figure exceed Level I of the federal government’s Rates of Basic Pay for the Executive Schedule promulgated by the United States Office of Personnel Management.”

The Executive Order goes on to state that “a provider’s failure to comply with such regulations established by the applicable state agency shall, in the commissioner’s sole discretion, form the basis for termination or non-renewal of the agency’s contract with or continued support of the provider.”   However, each agency’s regulations shall provide that, under appropriate circumstances and upon a showing of good cause, a provider may be granted a waiver from compliance with these or other related requirements in whole or in part subject to the approval of the applicable state agency and the director of the budget.

In order to implement the system, commissioners “shall regularly obtain the data from providers that are needed to monitor the providers’ compliance with these requirements and shall report to the director of the budget on an annual basis the impact of these requirements on the use of public funds to support excessive executive compensation and administrative costs among providers.”

The Executive Order applies to state agencies “including but not limited to the Office for People with Developmental Disabilities, Office of Mental Health, Office of Alcoholism and Substance Abuse Services, Office of Children and Family Services, Office of Temporary and Disability Assistance, Department of Health, Office for the Aging, Division of Criminal Justice Services, and the Office of Victim Services.” The Executive Order does not cover the State Education Department, which had been mentioned in the Governor’s original Title VII legislation.

Providers and advocates – while emphasizing the need to address any inappropriate use of charitable funds — found the proposals troubling.

“The human service sector has several questions and concerns about the administration’s approach to this issue,” says Michael Stoller, Executive Director of the Human Services Council of New York.  “The Governor’s Executive Order took us by surprise.  We have yet to see findings from the Task Force which he appointed last August and which has gathered substantial data from nonprofit human service providers.  We also had expected that we would be able to provide input for the development of policy during a State Senate hearing which is scheduled for February.

“The details of regulations which State agencies develop to implement the Governor’s guidelines will be extremely important,” Stoller continued.  “We hope that the nonprofit provider community will be able to play an active role in helping to formulate this critical policy.”

Providers expressed some concerns that individual agencies – DOH, OMH, OPWDD, etc. – are each being asked to develop their own regulations.  “We worry about whether there will be differences in regulation which will impose added compliance burdens on nonprofits which provide contractual services for multiple state agencies,” said HSC’s Stoller.

Many individual agency executives questioned the rationale behind the cap.  “I don’t know where they came up with the $199,000 figure,” said one.  “It seems pretty random.”

They also noted that the $199,000 level was a limit on State reimbursement, not on the salary levels of executives.    Several executives noted that this would allow larger organizations with diverse funding streams to cover executive salaries above the cap through allocations of donated funds or other revenue sources.   However, organizations whose revenues were almost entirely dependent on State funding, regardless of size, would face more significant challenges in maintaining executive salary levels.

For many, the Governor’s focus on executive compensation limits seemed like an unwarranted slap at the nonprofit sector as a whole.  “There are always outliers and individual cases of abuse,” said one executive. “But this makes it look like all nonprofit executives are simply lining their pockets.  That is simply not the case.”

Advocates expressed even greater concern over proposed restrictions on reimbursement  for administrative expenses.

“The administrative overhead limit is unfair to smaller and emerging organizations, often providers of niche and grass roots services, who simply do not have the budget size scale to maximize overhead efficiencies,” said Doug Sauer, CEO of the New York Council of Nonprofits.  “Also, if a limit is to be had, then the State Government should immediately look at reducing the unnecessary regulatory and reporting burdens that are often responsible for pushing overhead to be higher.  The State should also raise all administrative caps that they currently impose which are less than 15% — often 10% — to the 15% level.  These artificial levels force nonprofits to use charitable funds to subsidize government required mandates that raise overhead costs.”

“Historically, we believe that State government contracts have usually underfunded nonprofit agency administrative expenses,” said HSC’s Michael Soller. “We are not certain that the proposed 15% cap on administrative overhead reimbursement is the correct level.  However, we do believe that the implementation of any appropriate ‘cap’ on administrative expenses should also ensure that all state contracts provide reimbursement for administrative expenses up to that level as well.”

The Good News

The Governor’s Executive Budget included a number of proposals which drew strong support from providers and advocates.  These included:

•    Maintenance of Federal Title XX funding for New York City Senior Centers;

•    An investment of $93 million in State funds to offset Federal funding reductions in child care services;

•    Funding Summer Jobs for youth at $25 million, an increase of $10 million from last year;

•    An additional $1 million in funding for Food Stamp outreach;

•    A new “Close to Home” Juvenile Justice Reform Initiative;

•    New commitments for supportive housing.

“On behalf of the 10,000 seniors who were anxious to see if their senior center would be on the hit list due to a proposed Title XX cut again, we are thrilled and appreciative that Governor Cuomo did not include this cut again in his budget,” said Igal Jellinek, Executive Director, CSCS.  “The 16,642 letters sent by seniors to Governor Cuomo opposing a cut clearly portray the vital importance senior centers play in the lives of thousands of older New Yorkers.  Thank you, Governor Cuomo.”

“The Federation of Protestant Welfare Agencies (FPWA) applauds Governor Cuomo for including vital early childhood education funding increases for low-income children and their working parents in the Executive Budget,” said Fatima Goldman, Executive Director & CEO. “The $93 million of funding will ensure that working poor families will not lose their child care slots at a time of great economic need and high unemployment.”

“We strongly support the Governor’s call to provide an extra million dollars for food stamps outreach to families with children,” said Joel Berg, Executive Director of the New York City Coalition Against Hunger. “This modest investment in addition State spending, will surely generate exponentially more money in federal nutrition assistance benefits, thereby aiding broader economic growth.  The Governor clearly understands that this is not only good nutrition policy, but also good education policy, since children must be fueled before they can be schooled.”

“Citizens’ Committee for Children of New York (CCC) applauds Governor Cuomo for his steadfast commitment to reforming the State’s juvenile justice system to better serve youth and keep communities safer,” said Executive Director Jennifer March-Joly. “Last year, the Governor made a significant down payment on reform by eliminating costly and empty beds, closing placement facilities that were far from where youth lived, and creating a statutory funding mechanism for alternatives to detention and placement programs. Today, with the release of the SFY 2012-2013 Executive Budget, Governor Cuomo advances an ambitious set of juvenile justice proposals that create a more cost-effective system that will produce better outcomes for youth and communities throughout New York State.”

Harvey Rosenthal of NYAPRS praised the Governor’s commitments over the next three years to move 1,000 nursing home residents and 5,100 adult home and state Psychiatric Center residents into community housing and to create 3,400 NYNY III beds.

“The Executive Budget recommendation makes a good faith effort to expand certain behavioral health services by calling for a reinvestment policy,” said Andrea Smyth, Executive Director of the New York State Coalition for Children’s Mental Health Services.  “For example, Article VII language ties savings from general hospital and nursing home bed mergers, consolidations and closure savings to new supported housing development.  However, unlike past ‘Reinvestment’ schemes the proposed law does not specify a formula outlining what portion of savings might be ‘reinvested’.  Instead, the budget proposal gives total discretion to the DOH commissioner to determine what amount might be reinvested.  More disconcerting is the fact that there is NO mention of reinvestment relating to state psychiatric center mergers, consolidations and closures, despite giving the OMH Commissioner broad authority to restructure the state psychiatric center operations through mergers, consolidations and bed closures, including closing two adult psych centers and consolidating the operating management of three children’s psychiatric centers…The New York State Coalition for Children’s Mental Health Services calls on Governor Cuomo to include a specific Reinvestment formula to be added into his Executive Budget within the 30-day amendment period.”

The Bad News

There were, on the other hand, additional pieces of bad news for human service programs and programs.   Preliminary reports focused on the following:

•    Delay of the final 10% phase in of the public assistance grant to 5% in FY13 and 5% in FY14, saving $6 million in both FY13 and FY14.

•    Elimination of the Neighborhood Preservation Program and the Rural Preservation Program funded at $12 million.

•    Suspension of the $15 million NYC shelter supplement pending determination of the program’s efficacy.

“We are strongly opposed to the Governor’s proposal to further delay half of the third and final installment of the public assistance grant increase,” stated Bich Ha Pham, Director of Policy Advocacy and Research at FPWA.  ” Adult welfare recipients work in paid jobs or work activities.   These individuals sweep our parks, clean our city buildings, and otherwise work at jobs that do not pay enough for them to get off of welfare.  We should support their efforts by making sure that they and their families have a little more to make ends meet in these difficult times.”

The Hunger Action Network of York State added that “it was appalled” by the delay.  “Unemployment and poverty are soaring in New York State and Cuomo’s austerity budgets just keep making the situation worse. New York has a constitutional duty to care for its needy. Taking money away from poor New Yorkers after cutting taxes for affluent New Yorkers last month is both immoral and unconstitutional,” said Mark Dunlea, Executive Director of the Hunger Action Network of NYS.

“The further delay in a promised increase in the public assistance grant suggests a lack of attention to poverty, especially direct assistance to low-income New Yorkers,” said Sean Barry of VOCAL-NY.  “The already meager 10% increase was postponed from last year and will now be spread over two years.”

The Hunger Action Network, also took a less positive view of the budget’s funding for anti-hunger programs. “The Governor also failed to increase funding for emergency food programs, continuing the present $29.7 million allocation,” said Mark Dunlea.  “His statement that he would seek to ensure that no child would go to bed hungry apparently was limited to appropriating an additional $1 million to assist individuals in applying for food stamps and other federal nutrition programs. While appreciated, this falls far short of ending hunger among children.”