A.G. Schneiderman's Nonprofit Revitalization Act Signed Into Law

ALBANY – Overhauling the laws governing New York’s nonprofit sector for the first time in more than 40 years, Attorney General Eric T. Schneiderman’s Nonprofit Revitalization Act of 2013was signed into law last night by Governor Andrew M. Cuomo. Attorney General Schneiderman joined Senator Michael Ranzenhofer (R-Amherst), Assemblyman James Brennan (D-Brooklyn) and nonprofit leaders from across the state in celebrating the enactment of the sweeping reform legislation. The Nonprofit Revitalization Act includes substantial reforms that will cut red tape while enhancing governance and oversight of nonprofits. The Attorney General’s program bill was sponsored by Senator Ranzenhofer and Assemblyman Brennan, and it passed overwhelmingly in both the Senate and Assembly in June.

Nonprofit organizations operating in New York generate hundreds of billions of dollars in annual revenue – more than any other 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 Attorney General’s bill 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.

“Our nonprofit sector is one of the jewels of New York State, providing a wide range of vital services to families and communities across the state,” said Attorney General Schneiderman.“But for too long, outdated laws have burdened the sector in some areas, while providing too little oversight in others. I am proud of the work we’ve done with nonprofit leaders and the Legislature to transform our antiquated charities laws into a model for the nation. I am grateful to Senator Ranzenhofer, Assemblyman Brennan, Majority Leader Skelos and Speaker Silver for their leadership in guiding this bill to passage, and to Governor Cuomo for signing the legislation. I also thank the New York State Bar Association and countless nonprofit organizations that have worked for years to see this day.”

Attorney General Schneiderman’s bill is the product of more than two years of work by the Attorney General’s office, and a year of legislative deliberation and negotiation. As the top charities regulator in the state, Attorney General Schneiderman convened a first-of-its-kind Leadership Committee on Nonprofit Revitalizationshortly after taking office, a group consisting of 32 leaders of nonprofit organizations large and small from across the state. Last year, the Ccommittee issued a comprehensive reportto the Attorney General that included 38 concrete recommendations for revitalizing and renewing 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 Attorney General’s Nonprofit Revitalization Act. The Chief of the Attorney General’s Charities Bureau at the time, Jason Lilien, along with Senior Advisor and Special Counsel to the Attorney General James Katz and Senior Legislative Counsel Justin Berhaupt, led efforts on behalf of the Attorney General to draft and negotiate the bill during the legislative session.

The Nonprofit Revitalization Actmakes 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 Attorney General 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.

Senator Mike Ranzenhofer (R-Amherst), Chair of the Senate Corporations, Authorities and Commissions Committee,said, “I am extremely pleased that the Not- for-Profit Revitalization Act has been signed into law. Millions of New Yorkers depend on not-for-profits to respond in times of emergency, provide health care, and offer vital community assistance, among many other services. Despite the critical role not-for-profits play in our lives, the state laws that govern them had not been updated in over 40 years. As Chairman of the Senate Committee on Corporations, Authorities and Commissions, I was proud to work with my partners in government and most importantly, the not-for-profit community to sponsor this legislation that will help the not-for-profit sector to fulfill their essential mission in a streamlined and cost-effective way, while also reducing the opportunities for fraud and financial abuse.”

Assemblyman James Brennan (D-Brooklyn), Chair of the Assembly Committee on Corporations, Authorities and Commissions,said, "The Not-For-Profit Revitalization Act will modernize New York State law governing the formation and dissolution of not-for-profit corporations as well as providing oversight and accountability. I believe that these changes will make for a more welcoming environment for the formation and continued operation of the not-for-profit sector of our economy. I applaud the work of the Attorney General's office and the Governor in bringing this proposal to a successful conclusion."

Assemblywoman Helene Weinstein (D-Brooklyn), Chair of the Assembly Judiciary Committee,said, “Nonprofits and the courts will now 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 Governor Cuomo for signing this law, and Attorney General Schneiderman, Assemblyman Brennan, and Senator Ranzenhofer on the historic achievement.”

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, Senator 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.”

New York State Bar Association President David M. Schraversaid, “The new law helps nonprofits thrive in New York by reducing government red tape without compromising the Attorney General’s oversight. We commend Attorney General Schneiderman for his longtime leadership in promoting this reform.” 

David J. Mack, interim CEO of United Way of New York State, applauded the law as a measure that was “a long time coming.” A former chairman of the UWNYS board, Mack praised the new law as “a model of cooperation and collaboration between government and the not-for-profit sector that provides so much for so many New Yorkers.” This bill would not have succeeded, Mack said, were it not for his predecessor, Susan Hager, who retired in June after three decades as UWNYS CEO. 

Susan Hager, former CEO of United Way of New York State, said, “The bipartisan proposals contained in the Nonprofit Revitalization Act 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 law 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 law 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 Senator Michael Ranzenhofer for holding statewide public hearings, and Assemblyman James Brennan for his strong support and negotiations in good faith. And we thank Governor Cuomo for signing this bill into law.”

Michael Clark, President of the Nonprofit Coordinating Committee of New York,said, “It is imperative that our nonprofit laws be updated to create an environment more conducive to the efficient operation of New York State’s nonprofits and to foster the trust in their management and governance that they deserve. Attorney General Schneiderman’s bill, the Nonprofit Revitalization Act, benefits from having been fully informed by the best ideas of New York’s nonprofit professionals, including those of us who served on his Leadership Committee for Nonprofit Revitalization, and responds in a thoughtful and balanced way to many of the pressing issues identified for reform. On behalf of NPCC and our 1500 member nonprofits, we commend the Governor, the bill's sponsors and the legislature's leadership for recognizing the importance of the passage of this bill for fostering the modern and efficient operation of our State's nonprofits."

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."

Ron Soloway, Managing Director of Government and External Relations of UJA-Federation of New York,said, “The nonprofit sector plays an invaluable role in responding to the needs of individuals and communities challenged by complex social and economic factors. The Nonprofit Revitalization Acct will bring New York into 21st century. It will reduce operating costs without compromising accountability and public access to information. We applaud Attorney General Schneiderman for his leadership and the Governor and legislature for their support.”

Sean Delany, Executive Director of the Lawyers Alliance for New York,said, “We at the Lawyers Alliance represent more than 600 nonprofit organizations, many of which are small and community-based organizations that work in low-income neighborhoods. We strongly support the Nonprofit Revitalization Act, which will streamline bureaucratic processes and appropriately exempts small nonprofits from unnecessary and costly regulatory measures.”

Jennifer Leonard, president and CEO of Rochester Area Community Foundation, said, “New York taxpayers and charitable donors are well served by this new law. The Nonprofit Revitalization Act strengthens board governance and accountability over billions in charitable dollars, while simplifying the process by which nonprofits form, collaborate, merge and dissolve. Congratulations to the Governor, Attorney General and Legislature for taking these necessary steps.” Leonard served on the Attorney General’s Leadership Committee on Nonprofit Revitalization, whose report helped foster the new act. 

Marylou Borowiak, President and CEO of the Food Bank of Western New York,said, “The enactment of the Nonprofit Revitalization Act is welcomed news. 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 Senator Michael Ranzenhofer’s sponsorship of this important legislation.”

Summary of the Nonprofit Revitalization Act of 2013

The Nonprofit Revitalization Act brings 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 Actgives New York the strongest nonprofit governance regime in the country. The law:

• Ensures 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 (over $1 million in annual revenue), the board or audit committee will be required to follow additional oversight procedures.
   
• Prevents conflicts of interestby 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.
   
• Strengthens the Attorney General’s power to police fraud and abuse by granting clear power to bring judicial proceedings to unwind interested-party transactions.
   
• Ensures board independenceby prohibiting any employee of a nonprofit from also serving as chair of its board.
   
• Promotes good governanceby requiring all nonprofits to adopt conflict of interest policies and those with over $1 million in annual revenue and 20 or more employees to adopt whistleblower policies.

Attorney General Schneiderman’s Nonprofit Revitalization Actalso streamlines and modernizes 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.