New York Governor Andrew Cuomo recently signed an Executive Order to limit spending for administrative costs and executive compensation at firms providing services to the state. The order seeks to “curb … abuses” by state service providers that pay “excessive administrative costs and outsized compensation for their senior executives” at the expense of services to their clients. “We must make sure that taxpayers’ dollars are always used efficiently and effectively to improve the lives of New Yorkers,” Governor Cuomo said.

Under the order, state agencies must create regulations requiring service providers that receive reimbursement from the state to comply with the following requirements:

• Apply a minimum of 75 percent of state funds received for operating expenses to direct care or services rather than administrative costs. This threshold will increase by 5 percent annually until reaching 85 percent no later than April 1, 2015.
• To the extent practicable, limit executive compensation covered by state funds to $199,000 per year.

Agency commissioners have discretion to adjust the compensation limit annually. The adjustments are subject to the approval of the budget director and may not result in pay exceeding Level I of the United States Office of Personnel Management’s executive pay rate.

Firms failing to comply with the new regulations are subject to contract termination at the commissioner’s sole discretion. Compliance waivers are available, however, with state approval.

Agencies must regularly collect data from service providers to ensure compliance. The order takes effect 90 days after signing on April 17, 2012.