State Turns Again to Public Authority Reform

State Turns Again to Public Authority Reform
Bringing Transparency to Opaque Government Entities

New York—Drawing on past efforts to reform governance of public authorities, state legislators and officials have proposed a new omnibus bill to rein in public authorities, quasi-governmental entities responsible for a significant amount of state debt but lacking in transparency and accountability.

Attorney General Elliot Spitzer and Comptroller Alan Hevesi teamed up with members of the New York State Assembly in proposing the reform legislation, while Gov. George Pataki in January established a commission—stemming from work done by a 2004 committee—to examine public authority governance issues.

The legislation, announced in February, draws on work by the governor’s committee and previous bills from the Senate and Assembly to establish the means to regulate and investigate authorities, set limits on authorities’ power to raise capital, and create rules for auditor independence and more responsive governance.

A number of New York’s 733 identified public authorities and their subsidiaries have incurred more than $43 billion in debt on behalf of the state, according to government documents. That ability to raise substantial amounts of money, and the discovery by state auditors of mismanagement and malfeasance at some authorities, helped to spur reform efforts over the last year and a half.

“Over the course of time and many decades, generally, public authorities have served the state of New York well and made possible many beneficial things,” Sen. Vincent Leibell (R-Patterson) said. “But there’s a recognition that we do live in a different age and that many laws we deal with are old and need to be changed.”

In announcing the new bill, Assemblyman Richard Brodsky (D-Greenburgh) and Assembly Speaker Sheldon Silver (D-Manhattan), sponsors of the legislation, called on the senate and the governor to support the efforts.

Leibell, chairman of the senate Standing Committee on Corporations, Commissions and Authorities, sponsored legislation in 2004, and again in the current session, on which the new bill introduced in the Assembly is partially based. Leibell said he was confident that the legislature would pass a reform law this year.

“We’re all at the same starting point,” Leibell said. “There seems to be some agreement with the assembly, the senate and the governor, and that’s the starting point you need. Now the devil’s in the details.”

The Proposal

According to a statement released on Feb. 17, the omnibus bill would set up a public authorities Inspector General, “appointed by the Attorney General and authorized to investigate any public authority.”

It would create a Public Authorities Independent Budget Office, appointed by the Comptroller, to review budgets of statewide and larger public authorities. The bill would impose governance responsibilities on authorities’ boards, requiring independence among board members, separation of chairman and CEO roles, and board-approved financial statements.

Significantly, the bill places caps on debt. Currently, the state legislature must impose debt-issuing caps on authorities on a case-by-case basis. But, with many authorities accruing a total debt of more than $70 billion, the bill adds an apparently necessary debt control. Authorities must seek approval for initiatives that may exceed any imposed cap.

While the bill controls the growth of debt, it also curbs the proliferation of subsidiaries. Many of the 733 identified public authorities are actually subsidiaries created by authorities under specific contracts or projects without any public approval. The bill requires legislative approval for creation of a subsidiary.

A Temporary Commission on Public Authority (similar to the governor’s commission, chaired by Yale Professor Ira Millstein) would recommend the elimination or consolidation of authorities.

Finally, the bill attempts to remove conflicts of interest by prohibiting authorities from engaging audit firms that conduct audits for nonaudit services; beefs up procurement rules and restricts procurement lobbying; and applies ethics laws to the larger and statewide authorities.

State of Things

Accountability currently applies differently to different authorities. While all governing boards are comprised of appointees, not all must publicly disclose the financial conditions of the authorities in the same way, nor are their expenses controlled consistently.

Only 11 authorities fall under the jurisdiction of the Public Authority Control Board, which reviews and approves borrowing. These are counted among the 53 or so authorities whose financial statements are reported as part of the Comptroller’s annual financial statement.

Many of the remaining public authorities submit annual statements and independent audits to the governor, legislature and comptroller, according to a report released by Hevesi’s office in February in support of the proposed legislation. However, according to one official, the reports do not always rise to the level of GAAP-based annual statements.

Elements of the legislation are hoped to respond to some of these problems.

“All statewide elected officials and both houses of the legislature have worked on their own approaches to improving public authorities,” Hevesi is quoted in the announcement of the new legislation. “Now is the time to come together to develop a new milestone in creating transparency and accountability.”