Lawyers Alliance for New York Supports Nonprofit Revitalization Bill

Wednesday, May 15, 2013 - 11:16


Lawyers Alliance for New York announced its support of the Nonprofit Revitalization Act and Executive Compensation Act, proposed today by Attorney General Schneiderman, Senators Michael Ranzenhofer and Carl Marcellino, and Assembly members Jim Brennan and Steve Englebright.  “This bill will lift antiquated regulatory burdens on the nonprofits that form the backbone of our state’s communities,” said Lawyers Alliance Executive Director Sean Delany. 

The Revitalization Act promises relief to nonprofits in several ways.  It promises to speed the process of forming a nonprofit, which will reduce the need to spend scarce charitable resources on navigating red tape. It promises to reduce confusion by creating just two legal types of not-for-profit corporations, instead of the current four types. “These reforms will make New York a more hospitable environment for a sector that produces a significant number of jobs and is a substantial part of the state’s economy,” observed Mr. Delany.

The Revitalization Act’s governance reforms are also largely welcome.  According to Mr. Delany, “Too many recent scandals have highlighted the need for reform.”  However, he warns, that while the bill exempts small nonprofits from some of its more labor-intensive requirements, the bill needs further tailoring to ensure that small nonprofits are not required to invest in governance regimes more appropriate for larger organizations.  “The bill’s nonprofit governance reforms need further attention to ensure that they do not impose unnecessary new burdens on those in the nonprofit sector who can least afford additional expenses,” he continued.

Additionally, in a few places, the bill threatens to favor process over results.  For instance, a nonprofit could be subject to a lawsuit by the Attorney General for failing to follow specific procedures in approving executive compensation or a transaction between the organization and a board member, even if the arrangement was favorable to the organization. 

Finally, the bill uses nonstandard definitions for terms such as “compensation,” so that nonprofits will have to perform one set of calculations to satisfy Internal Revenue Service requirements and another set of calculations to satisfy the New York requirements.  “This is a change that threatens to confuse many nonprofit managers, who are already accustomed to complying with the Internal Revenue Code’s existing requirements,” says Mr. Delany.