Risk Management: Directors of Nonprofits

Court of Appeals to Directors of Nonprofits: “Nonprofit” Does Not Mean “No Risk for You”

WRITTEN BY BRUCE A. ERICSON, JERALD A. JACOBS, AND MARLEY DEGNER
CREATED ON WEDNESDAY, 22 APRIL 2015 12:29

The U.S. Court of Appeals for the Third Circuit recently upheld a $2.25 million jury verdict against the directors of a nonprofit nursing home, holding them personally liable for breach of their duty of care. Their sin? Failing to remove the nursing home’s administrator and CFO “once the results of their mismanagement became apparent.” While the court overturned a punitive damages verdict against five directors (the jury had found nine other directors liable for compensatory damages but not punitive damages), it upheld punitive damage awards of $1 million against the CFO and $750,000 against the Administrator. The decision, while unusual, illustrates that serving on a nonprofit board is not risk-free even if as in this case, the directors do not breach their duty of loyalty or engage in any self-dealing. [In re Lemington Home for the Aged, 777 F.3d 620 (3d Cir. 2015).]

The Lemington Home Case

Founded in 1883, the Lemington Home for the Aged was the oldest nonprofit unaffiliated nursing home in the United States dedicated to the care of African Americans. For decades, the Home had been “beset with financial troubles” and by the early 2000s it was being cited by the Pennsylvania Department of Health for deficiencies at a rate almost three times greater than the average.

In 2004, the Home’s Administrator [Mel Lee] Causey started working part-time while continuing to draw a full salary. That same year, two patients died under suspicious circumstances; an investigation by the Department of Health found that Causey lacked the qualifications, knowledge and ability to perform her job. An earlier independent review also recommended that Causey be replaced. Although the Board obtained a grant of over $175,000 to hire a new Administrator, the funds were used for other purposes and Causey stayed on.

The Home’s patient recordkeeping and billing were in a state of disarray. The Home was cited repeatedly for failing to keep proper clinical records. CFO Shealey stopped keeping a general ledger, instead simply recording cash transactions on an Excel spreadsheet. When a consultant conducting an assessment of the Home for a major creditor requested records, Shealey responded by locking himself in his office, forcing the consultant to “camp outside.” Shealey also failed to collect at least $500,000 from Medicare because he stopped sending invoices.

In January 2005, the Board voted to close the Home, but concealed that fact for three months before filing for bankruptcy. In those three months, the Home stopped accepting new patients, making it less attractive to potential buyers. While in bankruptcy, the Board failed to disclose in its monthly operating reports that the Home had received a $1.4 million payment, which could also have increased its chances of finding a buyer. The court held that these facts supported the jury’s verdict that the defendants had “deepened” the corporation’s insolvency, which the court said was actionable under Pennsylvania law. [777 F.3d at 630.]

The court of appeals upheld the jury’s compensatory damages verdict against the directors despite the Home’s bylaw provision protecting the directors from claims for simple negligence and requiring proof of selfdealing, willful misconduct or recklessness. [Lemington, No. 10-800, 2013 WL 2158543, at *6 (W.D. Penn. May 17, 2013).] Both the court of appeals and the district court held that the evidence supported a finding that the directors breached their duty of care by recklessly (1) continuing to employ the Administrator despite actual knowledge of mismanagement and despite knowing that she was working only part-time in violation of state law; and (2) continuing to employ the CFO despite actual knowledge of mismanagement, including his failure to maintain financial records. [777 F.3d at 628-30; 2013 WL 2158543, at *7; In re Lemington Home for the Aged, 659 F. 3d 282, 286-87 (3d Cir. 2011).] Despite these holdings, the court of appeals reversed the award of punitive damages against the five directors, holding that there was insufficient evidence that they possessed the requisite state of mind and no evidence of self-dealing. [777 F.3d at 634-35.]

The Result in Lemington Home: Unusual But Not Unique

Lemington Home is not the only case in which a court has held that directors of a nonprofit breached their fiduciary duties. Other cases—some new and some old—show how directors of nonprofits sometimes find themselves in the crosshairs, especially after an institution fails.

Perhaps the best-known case is Stern v. Lucy Webb Hayes Nat’l Training School for Deaconesses & Missionaries, 381 F. Supp. 1003 (D.D.C. 1974), where the district court held that the directors breached their fiduciary duties of care and loyalty by failing to supervise the nonprofit’s finances and by approving transactions that involved self-dealing. The court found that the board’s finance and investment committees had not met for over a decade, and the directors had left management of the nonprofit to two officers who worked largely without supervision. Nevertheless, the court declined to award money damages against the directors, opting instead to impose certain reforms on the board.

Starting in 2007, seven years of litigation (and millions of dollars in legal fees) ensued between two nonprofits interested in the creation of a memorial to Armenians who died during the First World War and two of their directors; the nonprofits lost their claims against the directors and ended up having to indemnify them. The district court denied summary judgment on the issue of whether the directors had breached their fiduciary duties but then concluded after a bench trial that the directors’ decisions and the process by which they made them were reasonable and, even if the directors had breached their duty, the corporation could not show that it suffered injury as a result. Armenian Genocide Museum and Memorial, Inc. v. The Cafesjian Family Foundation, Inc., 691 F. Supp. 2d 132 (D.D.C. 2010); Armenian Assembly of America, Inc., et al., v. Cafesjian, 772 F. Supp. 2d 20 (D.D.C. 2011), aff’d, 758 F.3d 265, 275 (D.C. Cir. 2014).

In 2010, the National Credit Union Administration sued the unpaid volunteer directors of Western Corporate Federal Credit Union seeking $6.8 billion in damages on account of the directors’ alleged failure to supervise the credit union’s investment decisions. The credit union had invested heavily in diversified portfolios of securitized mortgage-backed securities; when the credit crisis hit, the NCUA took over the credit union (much the way the FDIC takes over failed banks) and sued the former directors and officers. The district court granted the directors’ motion to dismiss, holding that the directors were protected by the business judgment rule. Nat’l Credit Union Admin, v. Siravo, et al., No. 10-1597, 2011 WL 8332969, *3 (C.D. Cal. July 7, 2011). (Two of the authors of this feature represented all directors and one officer in this litigation.) The officers did not fare as well; the court held that the business judgment rule did not protect them, and at least some officers ended up paying some money to the NCUA and suffering other sanctions.

These cases are unusual, which goes a long ways toward explaining the unusual rulings. Generally, absent fraud, bad faith, a conflict of interest, a wholesale abdication of responsibility, or decisions that are clearly unreasonable based on facts known at the time, the business judgment rule will protect directors of nonprofits from personal liability for a breach of the duty of care. But vindication can take years of litigation and lots of money.


What Are the Lessons of Lemington Home?

You can be sued. To be sure, directors of for-profit corporations are sued far more often than directors of nonprofits, but directors of nonprofits can be sued, nonetheless. 

If you are sued, the litigation can go on for years and be very expensive—even if ultimately you are vindicated. 

Because litigation—even unmeritorious litigation—can be expensive, directors should not serve without the protection of adequate directors’ and officers’ insurance (D&O insurance).

Directors of nonprofits, despite usually being volunteers, can face personal liability for breach of their fiduciary duties and will be held to much the same standard of care as directors of for-profit corporations.

Some states have enacted statutes dealing specifically with nonprofit directors’ duty of care. Pennsylvania has such a statute: 15 Pa. Cons. Stat. Ann. § 5712 (2011). [See Lemington, 659 F.3d at 290. Likewise, California has such a statute: Cal. Corp. Code § 7231.] But it is far from clear that these statutes offer directors of nonprofits any more protection than they offer directors of for-profit corporations; the differences are subtle, at best.

The business judgment rule offers directors some protection, but it is not an all-purpose shield against claims based on dereliction of duty, let alone disloyalty or self-dealing. To gain the protection of the business judgment rule, a director must be assiduous and informed before making decisions. Specifically: 

The board must supervise: it must ensure that the organization’s management are qualified to perform their duties and are actually performing those duties. The failure of the directors in Lemington Home to do this led to their being jointly and severally liable for $2.25 million in damages [777 F.3d at 626, 628.] 

The board must seek and follow independent expert advice where appropriate: the directors in Lemington Home failed to follow the recommendations of independent advisors to replace the Administrator, even after being awarded funds to do so. They also ignored the advice of their bankruptcy counsel. [Lemington, 2013 WL 2158543, at *7.]

Special care must be taken if the nonprofit veers toward insolvency:

Before filing for bankruptcy, consider conducting a viability study. In vacating the award of summary judgment for defendants, the Third Circuit in Lemington Home noted that the Board declined to pursue a viability study before filing for bankruptcy and suggested that this called into question the adequacy of their pre-bankruptcy investigation. Lemington, 659 F.3d at 286, 292. Beware the “deepening insolvency” theory. Although not recognized in every jurisdiction, the theory holds directors and officers accountable to creditors if their post-insolvency management increases the losses that creditors suffer.

This article was originally published as a “Client Alert” on PillsburyLaw.com on March 27, 2015. It is reproduced with permission.

A Court Case Reminds Us About the Importance of Donor Restrictions

All nonprofits should learn from this recent court case.  Donors can restrict gifts, and they can take the money back if we aren't accountable.

The NonProfit Times - August 12, 2013
Read full article here.       
It’s a simple concept: If a donor gives an organization a restricted gift, the organization must use that gift for the purpose determined. Some see it differently and that’s how it ends up in court.
The New Jersey Superior Court, Appellate Division, ruled that charities that do not follow donor intent must return the gifts. A three-judge panel ruled that a Mercer County animal shelter must disgorge a $50,000 gift originally slated for specialized construction.
Judge Jose Fuentes wrote in the opinion, “we hold that a charity that accepts a gift from a donor, knowing that the donor’s expressed purpose for making the gift was the fund a particular aspect of the charity’s eleemosynary mission, is bound to return the gift when the charity unilaterally decides not to honor the donor’s originally expressed purpose.”
The case turned on a gift given by a Princeton couple, Bernard and Jeanne Adler, to animal shelter SAVE (now SAVE, A Friend to Homeless Animals). The gift was to finance the building of an area for larger dogs and older cats, whose adoption prospects are limited, as part of a new facility in Princeton.
Before construction could begin, SAVE merged with another animal welfare nonprofit, Friends of Homeless Animals. The new plan was to build a new shelter in nearby Montgomery Township roughly half the size of what the new Princeton facility would have been; construction is expected to begin in the fall of 2013. Though SAVE trustee John Sayer testified that the new shelter would “absolutely” have rooms for large dogs and older cats, according to court documents, the court said that evidence suggested otherwise.
“Based on Mr. Sayer’s testimony and the letter announcing the merger between SAVE and Friends of Homeless Animals, we are satisfied that the 15,000 square foot shelter to be constructed in Montgomery Township does not include two rooms specifically designated for the long-term care of large dogs and older cats,” wrote Fuentes.
The Adlers filed suit in Mercer County in 2007, and a judge ruled in their favor in 2010. SAVE appealed, saying the first judge erred when he determined the Adlers’ gift was restricted. SAVE also argued that even if it was restricted, its purpose would have been fulfilled and, barring that, the lower court should have reworked the gift so SAVE could spend it on a project as near as possible to the original intent.
The appellate court disagreed, saying SAVE had courted the Adlers, who had been long-time supporters but who had never made a significant gift prior, with a campaign that specifically included the two rooms and a naming opportunity. “To be clear, the record shows that SAVE: (1) decided to construct a substantially smaller facility; (2) outside the Princeton area; (3) without any specifically designated rooms for large dogs and older cats; and (4) without any mention of plaintiffs’ names,” Fuentes wrote.
The appellate court affirmed the lower court’s decision on August 5. “By opting to disregard plaintiffs’ conditions, SAVE breached its fiduciary duty to plaintiff,” wrote Fuentes. “Under these circumstances, requiring SAVE to return the gift appears not only eminently suitable, but a mild sanction.”
Read more here.

News from The Non-Profit Times

Audits Show Widespread Underreporting of UBI

By The NonProfit Times - April 29, 2013

Unreported unrelated business income in higher education was found in almost every case examined by the Internal Revenue Service (IRS).

“The audits identified some significant compliance issues at the colleges and universities examined,” said Lois Lerner, director, Exempt Organizations division of the IRS. “Because these issues may well be present elsewhere across the tax-exempt sector, all exempt organizations need to be aware of the importance of accurately reporting unrelated business income and providing appropriate executive compensation.”

This is part of the multi-year project on tax-exempt colleges and universities. The Colleges and Universities Compliance Project was launched in 2008 with the distribution of detailed questionnaires to 400 randomly-selected colleges and universities. The IRS selected 34 of the 400 for examination because their questionnaire responses and Form 990 reporting indicated potential noncompliance in the areas of unrelated business income and executive compensation.

Unrelated business income (UBI) is the income from a trade or business regularly conducted by an exempt organization and not substantially related to its exempt purpose. Unrelated business taxable income is the UBI that is taxable after deducting expenses directly connected to the trade or business. Because UBTI is calculated by totaling the UBI from all activities and subtracting the total allowable deductions, losses from one activity can offset profits from another. Examinations have resulted in:

• Increases to UBTI for 90 percent of colleges and universities examined totaling about $90 million;
• More than 180 changes to the amounts of UBTI reported by colleges and universities on Form 990-T; and
• Disallowance of more than $170 million in losses and Net Operating Losses (NOLs, i.e., losses reported in one year that are used to offset profits in other years), which could amount to more than $60 million in assessed taxes.

The primary reasons for increases to UBTI in the completed exams were:

• Disallowing expenses that were not connected to unrelated business activities.

The IRS found that examined colleges and universities were reporting certain losses as connected to unrelated business activities when they were not. The misreporting occurred in two ways:

1. Lack of profit motive: The IRS found that organizations were claiming losses from activities that did not qualify as a trade or business. Nearly 70 percent of examined colleges and universities reported losses from activities for which expenses had consistently exceeded UBI for many years. UBI must be generated by a trade or business.

An activity qualifies as a trade or business only if, among other things, the taxpayer engaged in the activity with the intent to make a profit. A pattern of recurring losses indicates a lack of profit motive. The IRS disallowed reporting of activities for which the taxpayer failed to show a profit motive. Those losses no longer offset profits from other activities in the current year or in future years, with more than $150 million of NOLs disallowed.

2.  Improper expense allocation: The IRS also found that on nearly 60 percent of the Form 990-Ts examined, colleges and universities had misallocated expenses to offset UBI for specific activities. Organizations may allocate expenses that are used to carry on both exempt and unrelated business activities, but they must do so on a reasonable basis and the expenses offsetting UBI must be directly connected to the UBI activities. In many cases, the IRS found that claimed expenses, which generated losses, were not connected to the unrelated business activity.

The IRS checked the calculations for all NOLs reported on returns under exam and found that NOLs were either improperly calculated or unsubstantiated on more than a third of returns. As a result, the IRS disallowed nearly $19 million in NOLs.

The IRS also determined that nearly 40 percent of colleges and universities examined had misclassified certain activities as exempt or otherwise not reportable on Form 990-T. Fewer than 20 percent of these activities generated a loss. The examinations resulted in the reclassification of nearly $4 million in income as unrelated, subjecting those activities to tax.

Examinations resulted in more than 180 changes to UBTI reported for specific activities by colleges and universities. More than 30 different activities were connected to the changes. The majority of these adjustments came from the following activities: Fitness, recreation centers and sports camps; advertising; facility rentals; arenas; and, golf.

To see the online aricle click here.

Comptroller Thomas P. DiNapoli's Weekly News

DiNapoli Audit Finds $7.7 Million in Questionable Charges by Special Education Providers

The Lake Grove School and the Mountain Lake Children’s Residence, two special education providers run by the same company, overcharged taxpayers by as much as $7.7 million over a four–year period, according to an audit released Friday by New York State Comptroller Thomas P. DiNapoli.

DiNapoli: State’s Brownfield Cleanup Program Needs To Reach More Sites; Be More Cost–Effective

The New York State Legislature should examine options to restructure the state’s primary program to revitalize contaminated properties – the Brownfield Cleanup Program – in order to fully achieve the important economic, public health and environmental goals set when the program was created, according to a report released Monday by State Comptroller Thomas P. DiNapoli.

DiNapoli Supports Lobbying Disclosure and Independent Director Proposals at Peabody Energy

New York State Comptroller Thomas P. DiNapoli Tuesday announced support for two shareholder proposals at Peabody Energy Corporation’s annual meeting on April 29 calling for Peabody to disclose corporate lobbying expenses and to require the chairman of the board to be an independent director.

DiNapoli Refers Investigation of Substance Abuse Provider to U.S. Attorney

Phoenix Houses of New York, Inc. provided inappropriate perks to its executives exceeding $223,000 while under contract with the Office of Alcoholism and Substance Abuse Services, according to a report released Wednesday by State Comptroller Thomas P. DiNapoli. DiNapoli referred the findings to U.S. Attorney Preet Bharara’s office for review.

Comptroller DiNapoli Releases Municipal Audits

New York State Comptroller Thomas P. DiNapoli Wednesday announced his office completed the following audits: the Bloomingburg Joint Fire District; the Village of Depew; the Essex County Probation Department; theEssex County Sheriff’s Department; the Town of Johnsburg; the Town of North Castle; the Town of Owego Fire District; the Rescue Fire Company, Inc.; and, the Village of Village of the Branch.

Comptroller DiNapoli Releases Audits

New York State Comptroller Thomas P. DiNapoli Wednesday announced his office completed audits of the the Beacon City School District; the Chenango Valley Central School District; the Fairport Central School District; the Monroe–Woodbury Central School District; and, the Oppenheim–Ephratah Central School District.

The Greatest Risk of All from the Non-Profit Risk Management Center

Got Risk Insight? Submit a Session Proposal Today

If you’ve figured out how to identify risks, teach safety and risk management to the board, or engage staff members in risk management initiatives… we want you on the faculty of the 2013 Risk SUMMIT. Visit the conference webpage and complete the workshop proposal form before the May 1 deadline.

The Greatest Risk of All

By Melanie Lockwood Herman

“I’m only human
Of flesh and blood I’m made
Human
Born to make mistakes”

– Human, The Human League, © Universal Music Publishing Group, Kobalt Music Publishing Ltd., EMI Music Publishing.

Many leaders of leading nonprofits worry excessively about external threats: competing organizations, fickle institutional funders, increased government regulations, the unpredictable global economy, radical political changes, and the like. Yet the most serious threats to a nonprofit mission arise from the humanity of our workforce. After all, we’re only human. Avoiding conflict, burying mistakes and feeling apprehensive about risk-taking are familiar components of human DNA.

What’s the Risk of Being Human?

·         Conflict: When we ignore conflicting opinions or work styles at the board table or in the staff work room, we may rob our nonprofits of the contributions of creative leaders.

·         Mistakes: When we severely punish employees for their errors, we may inadvertently cause staff to bury their mistakes.

·         Risk Aversion: When we allow fear to extinguish proposed action that is risky, but potentially mission-advancing, we fail to leverage our reputation and assets.

Don’t Eliminate the Greatest Risk

If the greatest risk facing your nonprofit is its human DNA, how can you manage human nature? Here are a few strategies to consider:

·         Embrace Conflict: Identify examples of unresolved conflict in your nonprofit and reflect on the consequences. What toll has conflict avoidance taken on your mission? Have high-performing staff or volunteer leaders walked away in frustration? Acknowledge that conflict is normal. Instead of pretending that everyone agrees, dig deep to find the wisdom in disagreement. Applaud the team member who has the courage to say “I disagree, and here’s why,” when everyone else has voted “yes.”

·         Bring Mistakes to the Surface: Unearth mistakes and face them head on. Provide a comfortable space in which to step up and fess up to a mistake. Is that comfortable space consistent in the divisions, departments or functions of your nonprofit? How might you reward staff who bring errors, oversights or even wrongful assumptions to light?

·         Resolve to Take More Risk: How often is a creative idea dismissed as “too risky?” Instead of allowing gut reactions or protests from your risk manager to stifle creative ideas, reflect on ways to encourage and inspire risk-taking.

The Center offers numerous resources on the topic of human-inspired risk, including the upcoming webinar on HR Risk: Take the High Road without Getting Lost. Join me live on May 1st at 2 pm Eastern, or register to watch the recording at your convenience. You can also check out some of our articles exploring HR risk and reward:

·         Creating an Effective Employee Handbook for Your Nonprofit

·         Five Things That Should Never Appear in an Employee Handbook

·         Grievance Procedures and Internal Dispute Resolution

·         Happy Endings

·         Human Resource Risks and the Forest of Fog

Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your comments about people and risk or your questions about the Center’s services at Melanie@nonprofitrisk.orgor (202) 785-3891. The Center provides risk management Cloud tools and resources at www.nonprofitrisk.org and offers custom consulting assistance to organizations unwilling to leave their missions to chance.

The key to success for non-profits

By Matt Hicks
By Casey Killian

Binghamton, NY (WBNG Binghamton) The Greater Binghamton Chamber may serve business members, but it also shares community concerns.

Members came together Thursday to learn about the challenges non-profits face and how they can succeed.

The Executive Director of the Roberson Museum said their non-profit used an outside assessment in 2009 to launch the museum back from the brink of financial failure.

It's now a model of adaptability and success.

"Going from a point of crisis and personal anxiety on my part, to a place where I can share it with not only this community, but we're telling the story at Museum Wise Conference in Syracuse and at the American Affiliation of Museums Conference in Baltimore," said Terry McDonald, executive director of the Roberson Museum and Science Center. "It's a nationwide story. It's a good story to tell."

The New York Council on Nonprofits Inc. was the consultant that helped Roberson Museum.

It offered 21 recommendations, including selling the Decker Mansion and hiring a professional marketing staff. 

To see the video click here.

Nonprofit CEOs face pay limits in July

New $199G cap targets health, human services

After learning that two top executives at a New York City nonprofit that serves the developmentally disabled earned nearly $1 million each and got other benefits, Gov. Andrew Cuomo 15 months ago issued an executive order limiting executive salaries of organizations that contract with one or more of 13 state agencies to $199,000 a year.

The order, which also restricts administrative spending, directed the departments to issue regulations within three months. Proposed regulations came out after 90 days had elapsed and were to have taken effect Jan. 1 of this year. Due to the issue’s complexity and questions and criticism from the nonprofit sector, they were revised and the implementation date was moved to April 1. Additional changes were published in March, and the start date is now scheduled for July 1, nearly 18 months after Cuomo’s executive order.

To Read The Full Article Click Here

Brought to you by the NonProfit Quarterly: 

On Pay, Some Nonprofit Health Insurers Are Tone Deaf and Wrong

WRITTEN BY RICK COHEN

The mantra of the nonprofit sector right now is “one big tent”—no winners or losers, everyone pledged to everyone else. But it is hard to maintain that mentality when some nonprofits pay so much better than others. Those that seem to be drawing the most attention in an era of national health insurance reform are nonprofit health insurers, some of which are paying very big salaries and earning healthy profits while much of the nation, pre-Affordable Care Act, is underinsured or uninsured (and those who are covered face often escalating policy costs and co-pays).

For example, at the nonprofit Excellus BlueCross BlueShield, serving two million ratepayers in the Rochester, Syracuse, and Utica areas of New York State, the chief financial officer, Zeke Duda, got a $10.9 million payout when he retired at the end of 2011. The salary of the CEO, David Klein, somehow dropped from $5.2 million in 2011 to a not too shabby $3.8 million in 2012 when he retired. The new CEO, Christopher Booth, was the $1.6 million a year president and chief operating officer prior to Klein’s retirement. Excellus is no small operator, with revenues of $6 billion in 2012 and net income of $106 million (compared to $223 million in 2011).

Moving across the state line to Massachusetts, we note that, two years ago, Massachusetts Attorney General Martha Coakley tried to stop Blue Cross Blue Shield (BCBS) of Massachusetts from paying its board members. At the time, BCBS voluntarily suspended the payments, but now it has announced plans to reinstate the practice. The new plan is to pay board members who chair committees as much as $54,500 annually (down from the maximum of $78,600 proposed two years ago) while other directors can receive up to $47,000 (down from a max of $58,600 proposed two years ago). The plan is also to try to reduce the number of directors from 17 to 14.

Mark Rogers, who runs a “startup online professional community for board members,” ripped Blue Cross for the decision in a Globe op-ed. He contrasts the image of the Blue Cross board meetings with the “overwhelming majority of the nearly 1.6 million nonprofit organizations in America today…governed by boards composed of compassionate, intelligent, and selfless individuals who are dedicated to stewarding their organizations to [a] level of excellence that befits their mission without monetary compensation for their efforts.” His explanation of Blue Cross’s thinking? “It looks like arrogance.”

During the two years of the BCBS suspension of board payments, did Blue Cross find itself just about unable to function? Were board members, such as an executive vice president for Liberty Mutual Insurance and a senior advisor of Bain & Company, finding themselves too financially strapped to provide appropriate board service for Blue Cross? Deidre Cummings, the legislative director of the Massachusetts Public Interest Research Group, raised a similar query: “One would question why they were able to run their business for the last few years without paying people and why they have decided they have to start doing it again now.”

Perhaps BCBS survived due to the $1,500 payment for attending each board meeting and strategic planning meeting and the $1,200 payment for attending committee meetings. The latter is being reduced to $1,000 in the new structure. All of this is happening, of course, because Coakley’s vision of legislation to control board compensation didn’t come to pass.

Tone deaf? Multi-million dollar salaries to top executives? Five-figure compensation deals for otherwise voluntary board members? When poor people are facing higher costs for health care? Tone deaf and wrong. 

Concerns raised over family planning services in the Southern Tier

The Ithaca Journal Brings: Concerns raised over family planning services in the Southern Tier

BINGHAMTON — A local family planning nonprofit on Monday raised concerns about a potential turf war for abortion services in the Southern Tier.

Family Planning of South Central New York, Inc. — formerly the local chapter of Planned Parenthood — split from the national group early this year in response to a mandate that all Planned Parenthood chapters begin providing abortion services. The local group does not provide abortion services at any of its offices, but instead refers women to nearby abortion providers.

In response to disaffiliation of its former Binghamton-based chapter, Planned Parenthood on March 29 approved a measure to have a different chapter take over its territory in Broome, Delaware, Chenango and Otsego counties.

“We believe that this is a thinly-disguised attempt to threaten the finances and mission of an established, health department-supported program simply because we left the Planned Parenthood brand,” Family Planning of South Central New York CEO Debra Marcus said at a news conference Monday.

Under the national group’s plan, family planning and abortion functions in the four-county area would be turned over to the Ithaca-based Planned Parenthood of Southern Finger Lakes chapter.

Marcus expressed concerns the move would potentially lead to duplication of services, and threaten funding sources, including the approximately $1 million in state and federal funds the organization receives annually. The nonprofit’s annual budget is slightly more than $3 million.

“I want to make clear we are not opposed to competition,” Marcus said. “We don’t want to duplicate. We want to cooperate.”

Binghamton Mayor Matthew T. Ryan and Access for Women Director Peg Johnston also spoke at Monday’s news conference in opposition to Planned Parenthood’s decision.

In a written statement, Planned Parenthood of the Southern Finger Lakes CEO Joe Sammons said the organization “has a long history of working collaboratively with existing private and public family planning providers, including Planned Parenthood health centers across New York state.”

A Story From the Non Profit Quarterly

On Pay, Some Nonprofit Health Insurers Are Tone Deaf and Wrong

WRITTEN BY RICK COHEN

The mantra of the nonprofit sector right now is “one big tent”—no winners or losers, everyone pledged to everyone else. But it is hard to maintain that mentality when some nonprofits pay so much better than others. Those that seem to be drawing the most attention in an era of national health insurance reform are nonprofit health insurers, some of which are paying very big salaries and earning healthy profits while much of the nation, pre-Affordable Care Act, is underinsured or uninsured (and those who are covered face often escalating policy costs and co-pays).

For example, at the nonprofit Excellus BlueCross BlueShield, serving two million ratepayers in the Rochester, Syracuse, and Utica areas of New York State, the chief financial officer, Zeke Duda, got a $10.9 million payout when he retired at the end of 2011. The salary of the CEO, David Klein, somehow dropped from $5.2 million in 2011 to a not too shabby $3.8 million in 2012 when he retired. The new CEO, Christopher Booth, was the $1.6 million a year president and chief operating officer prior to Klein’s retirement. Excellus is no small operator, with revenues of $6 billion in 2012 and net income of $106 million (compared to $223 million in 2011).

Moving across the state line to Massachusetts, we note that, two years ago, Massachusetts Attorney General Martha Coakley tried to stop Blue Cross Blue Shield (BCBS) of Massachusetts from paying its board members. At the time, BCBS voluntarily suspended the payments, but now it has announced plans to reinstate the practice. The new plan is to pay board members who chair committees as much as $54,500 annually (down from the maximum of $78,600 proposed two years ago) while other directors can receive up to $47,000 (down from a max of $58,600 proposed two years ago). The plan is also to try to reduce the number of directors from 17 to 14.

Mark Rogers, who runs a “startup online professional community for board members,” ripped Blue Cross for the decision in a Globe op-ed. He contrasts the image of the Blue Cross board meetings with the “overwhelming majority of the nearly 1.6 million nonprofit organizations in America today…governed by boards composed of compassionate, intelligent, and selfless individuals who are dedicated to stewarding their organizations to [a] level of excellence that befits their mission without monetary compensation for their efforts.” His explanation of Blue Cross’s thinking? “It looks like arrogance.”

During the two years of the BCBS suspension of board payments, did Blue Cross find itself just about unable to function? Were board members, such as an executive vice president for Liberty Mutual Insurance and a senior advisor of Bain & Company, finding themselves too financially strapped to provide appropriate board service for Blue Cross? Deidre Cummings, the legislative director of the Massachusetts Public Interest Research Group, raised a similar query: “One would question why they were able to run their business for the last few years without paying people and why they have decided they have to start doing it again now.”

Perhaps BCBS survived due to the $1,500 payment for attending each board meeting and strategic planning meeting and the $1,200 payment for attending committee meetings. The latter is being reduced to $1,000 in the new structure. All of this is happening, of course, because Coakley’s vision of legislation to control board compensation didn’t come to pass.

Tone deaf? Multi-million dollar salaries to top executives? Five-figure compensation deals for otherwise voluntary board members? When poor people are facing higher costs for health care? Tone deaf and wrong. 

Providers for disabled fight cuts

Providers for disabled fight cuts

By Mark Boshnack

Three voluntary providers of services to more than 1,300 people with intellectual and other developmental disabilities face budget cuts in a recent state budget proposal.

The proposal by Gov. Andrew Cuomo, would cut $120 million in Medicaid funds to the state Office of People with Developmental Disabilities.

If that is included in the final state budget, due April 1, it will signal a 6 percent across-the-board cut in Medicaid reimbursements to ARC Otsego, Pathfinder Village and Springbrook, officials from those providers recently said.

State Sen. James Seward, R-Milford, who was among legislators who met with the officials last week to discuss the cuts, said action to restore the funds will be started next week, with the Assembly considering similar action in its budget. He said he was hopeful Cuomo would agree.

These cuts are sudden because of Medicaid overpayments to state facilities, he said.

“We are talking about services to the most vulnerable in our society,” he said.

Not only is restoring the cuts manageable in a $136 billion budget, but it’s very important for economic reasons as well, he added. 

The three providers employ more than 1,500 people, with Springbrook employing more than 1,000.

Paul C. Landers, president and chief executive officer at Pathfinder Village, said the cuts and unfunded mandates will cost his organization $300,000. Pathfinder provides services to people with Down syndrome and other developmental disabilities. Most live on its Edmeston campus.

Landers said he was still

analyzing the possible effects but said it 110 individuals would feel them. He said he was hopeful the cuts could be avoided.

Advocates for the residents say they, too, have spoken with elected representatives, who have been very supportive as well.

“The state gets a good deal by working with us,” Landers said. Steps have been taken to improve efficiencies to meet cuts during the last several years.

“This is not the right way for the state to meet its budget challenges,” he said. “Hopefully they will come up with a better way.”

Springbrook Chief Executive Officer Patricia Kennedy said it’s the responsibility of the providers’ leadership to make everyone aware of the cuts.

Springbrook has “a heartfelt commitment to serve people with special needs” through family-centered programs, according to its mission statement.

“We are responsible for people who need a lot of help and support,” Kennedy said.

The lawmakers she has met with have been very supportive, she said, and more meetings are scheduled.

If Springbrook has to deal with the $1.2 million in proposed cuts on top of other cuts in recent years, it will have a ripple effect in the economy as well as in the communities served, Kennedy said.

“We have come up with a contingency plan that will support the people we serve and our employees,” she said.  However, she said she was not prepared to be more specific at this point.

Springbrook is organizing its employees and board of directors to contact legislators and others to express their concerns, she said.

ARC Otsego employs about 300 people and provides services to 500 people with developmental disabilities and their families in a variety of settings, community relations director Lynne Sessions said. It stands to lose $700,000-$800,000 if the cuts go through. She was hoping people would contact their elected representatives to restore the funds  

Although many agencies are being cut during difficult economic times, “we serve people who need this support to live their lives,” she said.

The alternative for some would be institutional care, which can be more expensive, she added.

“As a society, we have an obligation to take care of those who can’t take care of themselves,” she said.

NYSACRA Action Alert

NYSACRA Action Alert

PLEASE consider reaching out to your assemblyman and senator to express your concern over the cuts proposed below. Springbrook provides invaluable support to people with developmental disabilities. The proposed 6% cut equates to $1.2 million for this organization.The proposed 6% cut equates to $1.2 million for this organization. The phone calls take less than a minute each. PLEASE PLEASE call.

As you are well aware, the proposed 2013-14 Executive Budget proposes a 6% across the board cut to all voluntary not-for-profit providers throughout the State of New York, effective April 1, 2013.  If this cut is enacted, the developmental disabilities system of supports and services will be negatively impacted, dramatically.  NYSACRA has received information from members as to how the reductions will be absorbed if a restoration is not successful.  Agencies will be forced to: reduce services and supports, eliminate entire programs, layoff all levels of staff including direct support professionals.  We all know how this will translate if the cuts are to be taken: the great strides we've made as a sector will quickly erode and the quality of life for people with intellectual and developmental disabilities (I/DD) will be negatively impacted.

Both houses of the State Legislature are in the process of negotiating and getting ready to release the respective one-house budget measures.  While we understand the 6% across the board cut to the not-for-profit developmental disabilities sector is gaining great attention in the State Legislature, we need to continue advocacy efforts and therefore we are asking agencies, parents and family members, agency staff and direct support professionals, self advocates to make two telephone calls this week.

WHO TO CALL:

Please make two telephone calls, one to your State Assemblymember and the other to your State Senator in their Albany Offices

WHEN:

This week (the week of March 4^th)

WHAT'S MY MESSAGE:

"I'm a constituent and I am concerned the proposed 6% across the board cut to the not-for-profit developmental disabilities providers will negatively impact supports, services and programs.  I wish to thank my Assemblymember/Senator for his/her support of people with intellectual and developmental disabilities and ask him/her to support restoration of the 6% proposed cut in the one-house budget bill."

HOW:

Contact the Assembly Operator at 518-455-4100 and ask to be transferred to your Assemblymember's Office. (if you do not know who your Member of the Assembly is, go towww.assembly.state.ny.us to identify your Member.  You may also obtain his/her direct Albany Office telephone number, rather than going through the Assembly Operator).

Contact the Senate Operator at 518-455-2800 and ask to be transferred to your Senator's Office (if you do not know who your Member of the Senate is, go to www.nysenate.gov to identify your Senator. You may also obtain his/her Albany Office telephone number on the website, rather than going through the Senate Operator).

THANK YOU FOR YOUR ONGOING ADVOCACY AND EFFORTS!

LOOK FOR MORE NYSACRA ACTION ALERTS

THROUGHOUT THIS WEEK AND NEXT WEEK