Monday, May 15, 2017

Kent Testifies on S-182

The Senate Health, Human Services and Senior Citizens Committee met Monday, May 15, to discuss S-182. Sponsored by Sen. Bateman, the bill “Limits time continuing care retirement communities may retain refundable entrance fee after resident vacates facility to no more than one year.” 

Sen. Vitale posted the bill for discussion only; hence, it was clear no vote was to be taken. In LeadingAge New Jersey President & CEO Michele Kent’s testimony, she urged—among other points—that the Bill not be supported for fear of rather dire consequences in financially challenged CCRCs.  

In addition to Kent’s testimony, Keith Robertson, Managing Director at Ziegler; Gary Baldwin, an active ORANJ Board member; Sen. Bateman; and Mr. Nagel, the individual whose personal experience prompted the Senator to sponsor this Bill, also addressed the committee.

Committee members were engaged, asking many questions, generally just to try to understand the many complexities in and variations of CCRC contracts.  Sen. Singer and Sen. Allen, who have much experience with CCRCs spoke, underscoring the funding complexities. Sen. Allen, a co-sponsor of the Bill, noted that if a solution to long wait times is needed, that LANJ, in concert with Ziegler and ORANJ, could pursue a solution that did not threaten the viability of any CCRC.


Kent's Testimony:

"S-182 Testimony

Senate Health, Human Services and Senior Citizens Committee

May 15, 2017

Good afternoon, Mr. Chairman and all members of this Committee.  I am Michele Kent, President/CEO, of LeadingAge NJ (LANJ), a non-profit trade association representing communities serving seniors across this State, including nursing homes, assisted living, affordable housing and, germane to today’s hearing, Continuing Care Retirement Communities (CCRCS).  Actually, we are fortunate to count among our membership the preponderance of NJ’s CCRCs, with 21 in LANJ.

On first blush, there is no way one cannot understand Mr. Nagel’s anger and dogged determinism.  Frankly, a cursory reading about his family’s story, and the unacceptable wait for the refund due them, makes one easily conclude that this proposed legislative “fix” is more than understandable.

Continuing Care Retirement Communities (CCRCs) deliver a residential and care model for seniors, one in which residents are assured of increasing levels of care (including nursing home beds) through the balance of their lives.  In NJ, approximately 17,000 individuals live in CCRCs.  We are proud of our CCRCs and invite you to visit these beautiful communities.  Thefinancing of a CCRC, however, is complicated.  There are various types of contracts with varying requirements.  Virtually all CCRCs require an often-substantial entrance fee be paid up front.  On top of that, there is a monthly assessment. 

Most CCRCs offer refundable contracts, with some portion of the entrance fee due back to family when the vacated unit is resold.  And therein lies the rub: the unit must be resold before a refund is due. 

In a moment, I shall be turning over my comments to Keith Robertson, Managing Director of one of the country’s most respected underwriters of CCRC financing, Ziegler.  Keith will detail how critical it is to the ongoing viability of a CCRC, and hence to its residents, that financial ratios are maintained, that liquidity meets certain thresholds.

Suffice it to say, some units are less desirable than others….for a whole host of reasons.  That may significantly delay their resale and, in turn, delay the issuance of a refund.

Not so many years ago, the housing market in NJ, not to mention across the country, hit major doldrums.  People’s homes weren’t selling and, for those expecting to move into a CCRC, that slowdown significantly impacted their ability to cover required entrance fees.  Hence, many delayed or even cancelled their plans to move.

So, as you can imagine, as this occurred, the vacancy rates in CCRCs escalated.  This then affected their cash flow.  And so, more and more units took much longer to resell and families began to experience much-longer than anticipated refunds….some quite extraordinarily long. Particularly when the community was not particularly flush, its ability to pay refunds in a timely way was crippled. Again, this was a phenomenon not unique to NJ. 

Last year, after more and more attention was brought to the issue and to Sen. Bateman’s proposed legislative solution, I surveyed the LANJ CCRCs to get a sense of how many “old” refunds each had pending.  The survey was simple and quite unscientific but, nonetheless, gave me a good sense of the scope of the issue.  This was in May of 2016.  I redid the survey in August of the same year and saw a significant and healthy improvement.  My contention was that, to the extent this issue was resultant from a housing slow down, things should improve as the housing market improved.  I redid the survey a third time in March of this year and was delighted to see that the numbers again showed a significant improvement.  The point is that, as vacancy rates decrease and individual units are resold, CCRCs can refund entrance fees much more quickly.

As mentioned, I would like, if I may, to turn the testimony to Keith Robertson from Ziegler who can detail the damage that would ensue from the passage of this clearly well-intentioned bill. The current financing model has and continues to work well in virtually all circumstances EXCEPT where a CCRC is already in precarious financial straits.

I leave you with this sincere recommendation:  if, indeed, you believe a “solution” is required to address delayed repayments, please know this is not the right course.  Passage of S-182 would do grave harm not only to the communities’ financial stability but, more importantly, would threaten the refunds for every current resident and, in the most dire of circumstances, require them to find a new home, surely not something any of us want for our aged citizens.

Thank you for the opportunity to speak with you today."

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