A New York court has held that the State’s regulatory limits on executive compensation and administrative expenses for entities that receive state funds unconstitutionally exceed proper regulatory authority. The regulations, which implemented a 2012 executive order by Governor Andrew Cuomo and went into effect on July 1 of last year, were promulgated in substantially similar form by thirteen different New York State agencies. Although other plaintiffs have challenged the regulations, this is the first time a court has held that they are unconstitutional.
On April 9, in Agencies for Children’s Therapy Services, Inc. v. New York Department of Health, the Nassau County Supreme Court held that the Department of Health (“DOH”) “strayed from the administrative into the legislative field” in promulgating the regulations, which, among other things, prohibit the use of more than $199,000 in State funding to compensate certain executives and employees of entities that receive at least 30 percent of their overall in-state revenues from the State. Using the factors identified in the New York Court of Appeals’ holding in Boreali v. Axelrod, 71 N.Y.2d 1 (1987), to determine whether DOH “had usurped the role of the legislature in making public policy assessments,” the Supreme Court concluded that: