Senate Passes Bill to Revitalize Not-For-Profit Laws
The New York State Senate today passed the Nonprofit Revitalization Act (S5845), sponsored by Senator Michael Ranzenhofer (R-C-I, Amherst), that would – for the first time in 40 years – overhaul state laws that govern charities and other not-for-profit organizations.
“The state laws that apply to not-for-profits were enacted in 1969 and, since that time, there has been no comprehensive review and update -- until now,” Senator Ranzenhofer said. “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.
In listening to the concerns of these organizations and officials across the state, we have developed comprehensive legislation that will help the not-for-profit sector continue to fulfill its essential mission in a streamlined and cost-effective way, while also reducing the opportunities for fraud and financial abuse.”
Not-for-profit organizations play a critical role in New York’s economy and account for one in every seven jobs in the state. There are more than 103,000 nonprofits in New York that employ 1.25 million people and generate billions of dollars in annual revenue.
As Chairman of the Senate Committee on Corporations, Authorities and Commissions, Senator Ranzenhofer helped develop the Nonprofit Revitalization Act after extensive meetings with stakeholders and the convening of multiple public hearings to examine comprehensive amendments to the state’s Not-For-Profit Corporation Law. The Law covers a diverse array of entities, including membership corporations, cemetery corporations, fire corporations, religious societies, medical societies, alumni corporations, historical societies, agricultural societies, trade organizations, as well as charitable organizations, hospitals and not-for-profit nursing homes. Many of these entities are also regulated by other state departments, including the Department of Health, the Office of the Attorney General, and the Education Department.
“Piecemeal changes over the years have created an antiquated and intrusive regulatory environment that has even caused some nonprofits to leave New York and incorporate in other states,” Senator Ranzenhofer said. “In addition, the heightened scrutiny due to a few publicized acts of fraud and financial abuse, the slow economic recovery, and recent weather-related disasters have presented unprecedented challenges for nonprofits. The time is right to cut red tape, ensure greater accountability, and make New York a truly business-friendly environment for these important organizations.”
The Nonprofit Revitalization Act reduces unnecessary, outdated, and costly burdens to help not-for-profit organizations focus resources on providing services. It will improve oversight of operations which will have the dual role of providing organizations with better financial management and increasing the public trust that donations and taxpayer funds are being put to proper use. Key provisions of the Act include:
· Reducing bureaucracy and costly requirements by amending rules governing not-for-profit property sales, mergers, corporate formations, and dissolutions to create a more welcoming environment for new not-for-profits and a more business-friendly environment for existing ones. It will also increase efficiency by modernizing board procedures, such as enabling not-for-profits to use email and video technology for meetings, and allow boards to delegate the approval of small transactions to committees.
· Strengthening accountability and enhancing charitable governance by setting forth clearer expectations of board duties in key areas, such as providing better financial management and oversight over financial audits. It includes new provisions to limit and, when necessary, remedy self-dealing to prevent conflicts of interest and ensure transactions are performed in the organization’s best interest. Employees of a nonprofit will also be prohibited from serving as chair of the board to help promote clear lines of accountability between management and the board and ensure independent board leadership.
Assemblyman James F. Brennan (D, Brooklyn), “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. I am confident that this new law will make it easier for nonprofits to incorporate in this state.”
Susan K. Hager, President and CEO of United Way of New York State, said: “United Way of New York State commends Senator Ranzenhofer for his thoughtful and bipartisan approach to getting this bill passed. He and his staff spent countless hours talking with many stakeholders and holding three hearings around the state--the very model for what a policymaking process should be. The end result is a compromise, which is not surprising, however this bill is a very welcome reboot of the state's not for profit corporation law. The bill's provisions, including a common sense reclassifying of charities, a stronger role for Boards of Directors in financial oversight, permitting the use of e-communications, and simplifying the merger and consolidations process, among others, represent significant reforms, which United Ways strongly support.”
David M. Schraver, New York State Bar Association President, said: “We commend Senator Ranzenhofer for recognizing that not-for-profit organizations play a vital role in our economy and the lives of all New Yorkers. This measure would make it more attractive to create nonprofits in New York rather than in other states. It would help nonprofits thrive -- by reducing government red tape while not compromising government oversight. The New York State Bar Association long has called for modernizing the Not-for-Profit Corporation Law. We congratulate Senator Ranzenhofer on his leadership.”
Jennifer Leonard, President and CEO at Rochester Area Community Foundation, said: “Daily, every New Yorker benefits from the hard work of countless nonprofit organizations. The Nonprofit Revitalization Act, developed by an innovative partnership of nonprofits and state government, modernizes outdated state laws to simplify operation and strengthen governance of our caring, creative, faith-based and educational institutions. We all stand to benefit from its passage.”
Michael Stoller, Executive Director of The Human Services Council, 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, 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.”
Peter J. Kiernan, Chair of the New York State Law Revision Commission, said: “I salute Senator Ranzenhofer for his leadership in pursuing meaningful reform to the state’s Not-For-Profit Corporations Law. The Legislature’s passage of amendments to the outmoded statute represents progress for the over 100,000 not-for-profit corporations in New York. The Commission was pleased to participate in the process that led to the legislation and hopes the dialogue about reform will continue.”
The bill has been sent to the Assembly.