By MICHAEL GORMLEY
Associated Press

ALBANY - New York's Assembly will examine whether a charity that U.S. Senate hopeful Caroline Kennedy helps run was properly granted an exemption that allows her and other officials in the organization to avoid disclosing details about their finances.

Democratic Assemblyman James Brennan questions the decision by the New York City Conflicts of Interest Board to exempt The Fund for Public Schools from a law aimed at airing the financial dealings of charities.

Kennedy, who hopes to succeed Hillary Rodham Clinton in the Senate, is vice chairwoman of the nonprofit organization.

The law requires most volunteer directors of charities working with state and municipal governments to disclose investments, outside pay and other financial connections. It was passed partly to assure that charities aren't shadow agencies of the governments they support.

On Dec. 10, the city board told Brennan's Assembly committee that Kennedy's charity would be exempt from disclosure. The board notice to the Assembly came two days after Mayor Michael Bloomberg strongly supported Kennedy as a successor for Clinton were she to be confirmed as President-elect Barack Obama's secretary of state.

"I think it's a matter of concern as to whether the statute applies to them or not," Brennan said. "Certainly this needs to be rethought ... we'll check into it."

City officials said the exemption was first made public in mid-October by the conflicts board, which is separate from the mayor's office, although the mayor appoints its members.

Shortly after that comment, city Department of Education general counsel Michael Best said the legal determination to exempt the charity was made in January 2007. He said there were no documents that he could release showing that, saying they were subject to attorney-client privilege.

If the Assembly determines that the exemption was improperly granted and it can't negotiate a solution with the charity, it could sue for disclosure. It also could try to amend the law to eliminate the city's argument for exempting the charity.

The effort led by Brennan means there is likely support for action by Assembly Speaker Sheldon Silver, one of the state's most powerful leaders.

This was the first year the fund would have had to comply, but a decision was delayed as the city considered exemptions that are allowable under the law. Neither Kennedy nor Gov. David Paterson, who will appoint the state's next senator, will discuss her financial information.

Much of the Kennedy's family wealth is tied up in trusts and other mechanisms that conceal its scope from public view. Caroline Kennedy is the last survivor in her family, making it likely that she received an inheritance from her mother - once married to Greek shipping tycoon Aristotle Onassis - and from her late brother, John F. Kennedy Jr. She also assumed an oceanfront property her mother owned on Martha's Vineyard.

The Fund for Public Schools has raised more than $233 million since 2002 from people, corporations and foundations to better fund the city's public school system. Kennedy was hired as its chief fundraiser in 2003, getting a nominal salary, but is now vice chair.

"We are confident that the Fund for Public Schools has complied with both the letter and the spirit of the law, and it is our understanding that the city's Conflict of Interest Board fully concurs," said Kennedy spokesman Stefan Friedman. "Ms. Kennedy is rightly proud of the work she's done in engaging private-sector financial support for the city's public-school kids and looks forward to continuing her work at the fund."

The 2006 state law seeks to reveal whether government officials have "substantial operational control" of a nonprofit organization.

The Conflicts of Interest Board determined that the Kennedy charity should be exempt from disclosure laws because isn't affiliated with city government.

"The fund is affiliated with the (city) Department of Education and the Department of Education is a school district, and that's how it's acknowledged in state law," said Margie Feinberg, a spokesman for the city Education Department who was also speaking for The Fund for Public Schools. "The fund isn't affiliated with a city or county or town or village."

The conflicts board wrote Brennan's committee that: "The Fund for Public Schools, Inc. would not be considered ‘affiliated with, sponsored by, or created by' the city. The corporation has a self-perpetuating board that is controlled by neither the Board of Education nor the chancellor."

Unlike other school districts, New York City schools have been under mayoral control since 2002. The chairman of The Fund for Public Schools is Joel Klein, the city schools chancellor who was appointed by Bloomberg, the only official needed to fire a chancellor under mayoral control.

The Fund for Public Schools is located at 52 Chambers St. in Manhattan, the old Tweed court house that is now home to the city education department.

"That would seem to indicate substantial control," Brennan said when told of Klein's role as chairman. "We would certainly suggest to them (the city conflicts board) that they are making a mistake, excluding them from coverage."

"There's this gray area," said Dick Dadey, executive director of Citizens Union, a city watchdog group that has followed the issue. "It's an agency that has it both ways at times."

"The letter of the law is being followed," Dadey said, but added: "I think they probably should not be exempt."

He agreed that the state's 32-page disclosure form for directors - similar to financial disclosures required of elected officials - is probably unnecessary for volunteers and could chase some important people from public service. The city is currently considering a shorter form.

"We've seen the growth of use of these affiliated not-for-profits that provide very good services and strong support, but that shouldn't be done without an important level of disclosure for the public to scrutinize," Dadey said.