Editorial: Keep New York's charities honest

At a time when government funding is scarce and human needs are great, New York's nonprofits fill a vital role.

Yet they labor under archaic legal requirements that divert cash and energy from helping people. And their credibility is tarnished every time a dishonest charity makes headlines because its executives were lining their pockets with donor contributions or taxpayer funds.

Welcome initatives to address both these problems are on the horizon -- and not a minute too soon. New York's nonprofit sector is huge; there were 79,287 tax-exempt nonprofits in this state in 2009, up 49 percent in just a decade. Most of these groups provide essential health care and other services, to say nothing of employment, for millions. Nonprofit Medicaid providers alone collect billions from taxpayers annually.

But nonprofits in this state face too much red tape and too little oversight. Establishing a nonprofit, for instance, is a confusing and time-consuming ordeal in New York. If, in its paperwork, a nonprofit theater group mentions acting classes for kids, it might need the Board of Regents to certify that no waiver is necessary for this educational activity. It's just as hard, if not harder, for a New York nonprofit to go out of business, even if it sees no need to perpetuate itself, or if transferring its assets to another charity would be a more efficient way to accomplish its mission.

At the same time, some nonprofit leaders don't seem to understand that they're supposed to serve the public interest rather than function as vehicles of private enrichment. David Winston, for instance, pleaded guilty in Nassau County to charges arising from a phony breast cancer charity. He and his wife allegedly used $500,000 in donations to pay for their extravagant lifestyle.

The same archaic laws that burden nonprofits with pointless requirements are also too vague when it comes to the duties of board members. And they don't give authorities enough power to act when something's wrong.

To address these issues, state Attorney General Eric Schneiderman has assembled a comprehensive set of reforms he hopes to translate into legislation. Drafted in conjunction with nonprofit leaders, the Schneiderman plan is designed to slash red tape while making it easier for the attorney general's charities bureau to police wrongdoing -- for example, by unwinding smelly deals that benefit nonprofit insiders.

Skilled and dedicated board members are crucial for keeping a nonprofit from running off the rails. The Schneiderman plan recognizes this -- and would write into the law a host of good practices on conflicts of interest, executive pay, whistleblowers and independence. Chief executives, for instance, would be barred from becoming board chairman.

Aside from his legislative proposal, Schneiderman has joined with colleges around the state, including Adelphi University in Garden City, in a plan to provide training for current and prospective directors so they can better understand their responsibilities and carry them out. He's also working with businesses to expand the talent pool of outside directors who have the skills that nonprofits need.

Gov. Andrew M. Cuomo, meanwhile, has issued a strong order that will limit the use of taxpayer money for executive compensation at state-funded service providers, including ones that are not for profit. The governor acted after reports of outrageous executive pay at Medicaid-funded nonprofit providers of adult care. Under the order -- to be carried out via regulations being drafted by state agencies -- state payments could not be used for executive pay exceeding $199,000 in most cases, or for administrative expenses exceeding 15 percent.

The challenge is to shut down the corrupt without imposing a solution that wouldn't work for hospitals and other big nonprofits that can't get a good CEO for $199,000. In nonprofits as in so much else, one size doesn't fit all.