The partial federal government shutdown ended on January 25, after 35 days of disrupting HUD’s ability to obligate funds to rental assistance contracts and paralyzing other HUD functions.
With HUD and its funding shutdown effective December 21, 2018, HUD was not able to renew 650 contracts for its multifamily housing partners in December. Of these 650 communities with expired contracts, MSNBC spent much of the day on January 14, 2019, broadcasting live from San Jose Manor, a LeadingAge member in Jacksonville, FL with about 100 residents.
Here’s an overview of our work for you in December 2018.
The 97 page booklet, available on HUD Exchange here, is the culmination of many years of work by industry professionals who came together with HUD to write this practical "how-to" manual focused on the preservation of HUD 202, 236 and Section 8 properties. It also captures much of the material used for the HUD Preservation Clinics held throughout the country in 2015 and 2016.
According to HUD, the proportion of very low-income renters with worst case needs increased among all household types in 2015; increasing 40 percent for elderly households without children.
The article discusses the ways that partner interest flips starting in year 11 or 15 can be used in (a) preventing limited partner negative capital accounts, (b) allowing general partners to actually recover their negotiated residual value share, (c) providing financially doable exit transactions, (d) negotiating sale of capital accounts and other uses. The tax issues are discussed, and strategies for incorporating partner interest flips are presented.
Garden Spot Village in New Holland, PA, plans to provide affordable housing and services to low-income older adults without using any government subsidies. CEO Steve Lindsey talks about the project in this interview with LeadingAge.
Administrative Guidance for Multifamily Property Assessed Clean Energy (PACE)
In May 2014, the Financial Accounting Standards Board (FASB) completely rewrote the rules for revenue recognition. Accounting Standards Update (ASU) 2014-09 –Revenue from Contracts with Customers created a new principle-based framework to determine when and how an entity recognizes revenue from its customer contracts. The effective date for the changes under ASU 2014-09 has been pushed back one year from the original date due to implementation issues. Effective dates are set to begin after December 15, 2017, for public entities, including entities with conduit debt, and after December 15, 2018, for all others, according to CliftonLarsonAllen.
New framework based on core principle
FASB established a core principle for recognizing revenue within the new rules: revenue should be recorded only when services are provided or goods are transferred to customers at the agreed price.
FASB provides five steps for organizations to determine how to recognize revenue from customers:
- Identify the contract(s) with a customer.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations in the contract.
- Recognize revenue when (or as) the entity satisfies a performance obligation.
Implementation challenges for health care industry
The American Institute of CPAs (AICPA) Health Care Entities Revenue Recognition Task Force is one of 16 industry task forces created to identify potential implementation issues and provide guidance. Although no formal guidance has been issued yet, the task force has begun to identify significant issues that may affect the health care industry. These issues will be submitted to various AICPA and FASB committees for consideration.
The intent of the new rules is to establish a core principle for revenue recognition across all industries. While this concept may not appear to be overly complex at first glance, the different sub-industries within health care have a variety of contractual arrangements with customers to provide services and goods (performance obligations). The numerous ways that entities are paid may make implementation challenging.
The greatest impact of the new rules will be on transactions that overlap at the end of the reporting period (typically year-end); therefore, organizations should focus their efforts on the revenue recognition issues related to those transactions.
Variations by health care sub-industry
The new revenue recognition model will have an impact across the health care industry, from hospitals to continuing care retirement communities (CCRCs). Each health care sub-industry will have challenges unique to their field.
Continuing care retirement communities
Under current standards, nonrefundable entrance fees are amortized over the expected lives of residents, while monthly service fees are recognized immediately. Under the new standard, a CCRC will likely need to estimate the transaction price that includes both amortization of the nonrefundable entrance fee and the expected monthly service fees the organization receives under the resident contract. The implementation issues will include identifying the performance obligation or obligations and transaction price, then recognizing revenue as the performance obligation(s) are satisfied.
CCRCs will need to assess whether there is a financing component (an interest free loan) in the advance entrance fee the organization receives, which would increase the transaction price with the imputed interest. Given the various plan options that are available, the answer may differ from one organization to the next. One key area that implementation committees should focus on is understanding the impact of the new revenue framework on each type of contract, which ranges from life-care to fee-for-service.
Hospital and health systems
Hospitals face many challenges as well. For example, when providing emergency services to uninsured or self-pay patients, they must determine when a contract is created, and when and how the transaction price is determined. Hospitals will also need to apply the standard’s concept of “implicit price concessions,” such as adjustments to gross charges for third-party payers, or the amount the hospital expects to be entitled to for their services in estimating the transaction price. After the transaction price is determined, the probability of collection will need to be determined for revenue recognition. These considerations will impact both the timing of revenue recognition and the amount that is recognized.
Third-party payor settlements
Health care providers will need to address the process for estimating third-party payor settlements as “variable consideration” under the new standard. The current estimate is broadly based on knowledge and experience. Under the new standard, the estimate will need to be based either on the expected value (probability weighted amounts in a range) or the most likely outcome, if the outcomes are limited.
Other considerations for health care providers
Organizations can apply the new standard to a portfolio of contracts with similar characteristics “if the impact would not materially differ from applying to individual contracts.” This can create consistency and efficiencies during implementation and future revenue recognition. Health care providers will be able to determine what detail of disaggregation of portfolios is needed, such as life-care or fee-for-service contracts, uninsured and self- pay patients, co-payments and deductibles, charity care, Medicaid and Medicare, or other third-party payers. Organizations can immediately begin developing portfolios of revenue contracts in preparation for implementation of the standard.
How we can help
FASB, AICPA, and several trade associations have begun studying these issues, but formal guidance is not expected soon. In addition, because the effective date of these new rules has been deferred, many have taken a “wait and see” attitude. Unfortunately, the date for implementation will eventually arrive.
Both public and nonpublic companies should prepare to adopt the new requirements by inventorying their revenue streams and evaluating how revenue will be affected by the new rules. CliftonLarsonAllen professionals have deep insight into issues in the health care industry and understand how these rules are likely to impact the industry in general, as well as individual clients. We can help you understand and adapt to these standards so that you can embrace the changes with confidence.
This article was reprinted with permission from CliftonLarsonAllen.
The 2016 Ziegler Greystone Executive Symposium welcomed senior living leaders from around the country March 2 to 4 in New Orleans, La. This year’s event addressed current and relevant trends and topics including:
- Transforming Business Models
- Accessing Capital to Finance Change
- Repositioning for Comparative Advantage
- Creating Urgency in Marketing
- Mission-Driven Business Outcomes
- Planning for Growth
In addition to these sessions, attendees took part in the annual ZGES Survey of Industry Trends. This survey seeks to capture the current mood of non-profit providers, including what their organizations are doing in response to their local environments. It’s always fascinating to see how the responses change year-over-year, providing a look at the trajectory of senior living as given by top executives from leading organizations.
Here are a few key findings from this year’s survey:
- The Respondents: 23 organizations completed a survey, including 14 single-site organizations and one that has yet to develop a community.
- Economic Outlook: 41 percent of respondents are more optimistic about the economic outlook compared to last year, while 55 percent remain unchanged in their optimism.
- Real Estate Market: 17 of 23 respondents see the real estate market as strong, while three see it as excellent.
- Sales Incentives: 59 percent of respondents are continuing with existing sales incentives, while 27 percent have scaled back. By comparison, only 10 percent of respondents had scaled back sales incentives in 2015.
- Current Threats: The most significant threats as seen by these providers are the regulatory environment and reimbursement changes, followed by for-profit competition and operating costs.
- For-Profit Competition: 78 percent of respondents indicate that for-profit investment in their markets has increased from last year.
- Occupancy Concerns: Providers are less concerned about independent living occupancy and more concerned about assisted living and memory support occupancy.
- Succession Planning: 78 percent of respondents anticipate succession in the next 10 years, but 57 percent of respondents currently have no succession plans in place.
- Growth Plans: 21 of 23 respondents are currently planning a redevelopment or expansion.
- Growth Readiness: 12 of 23 respondents say they are actively planning for new opportunities and that their boards are ready, while 8 of 23 are currently focusing on existing campuses.
- Types of Growth Initiatives: 19 of 23 organizations are considering multiple growth initiatives.
- The Next Three Years: In the next three years, 10 respondents are looking at new development, 16 at expansion of an existing campus, and 10 at redevelopment of an existing community.
- Investment Constraints: Access to a quality site and capital market requirements are the most common constraints to investment, followed by staff time and pre-finance funding.
Contact us if you’d like to participate in the 2017 Ziegler Greystone Executive Symposium.
See the full presentation report of this year’s survey findings.
Pages
