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Home My WebLink AboutRESOLUTIONS - 01071986 - 1.61 r • . �710 BOARD OF SUPERVISORS MCM: Phil Batchelor, Contra' County Administrator Costa ®r DATE: December 23 , 1985 Co y"ry SUBJECT: Financing of Nursing Homes/Retirement Facilities SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATION 1) Authorize the Director .of Community Development and Health Services Director to pursue the development of a project utilizing Industrial Development Bonds and/or tax-exempt housing bonds to increase the availability of residential care facilities for the elderly in cooperation with a for-project or private non-profit organization. 2) Authorize the Director of Community Development and Health Services Director to pursue the development of a project utilizing Certificates of Participation to increase the availability of skilled nursing home beds in the county in cooperation with a for-project or private non-profit organization. BACKGROUND See attached memorandum from Director of Community Development. .i CONTINUED ON ATTACHMENT; _ YES SIGNATURE: f' _ RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE UNANIMOUSABSENT ^� ( � AND CORRECT COPY OF AN ACTION TAKEN AYES: NOES: AND ENTERED ON THE MINUTES OF THE BOARD ABSENT: ABSTAIN: OF SUPERVISORS ON THE DATE SHOWN. CC: ATTESTED �m County Administrator Director of Community Development PHIL BATCHELOR, CLERK OF THE BOARD OF Health Services Director SUPERVISORS AND COUNTY ADMINISTRATOR GM382/7-83 BY ,DEPUTY Contra Costa cni.vtv CONTRA COSTA COUNTY R L C s=l w L) COMMUNITY DEVELOPMENT DEPARTMENT DEC. - 41985 Office of County :administrator TO: Phil Batchelor DATE: November 26, 1985 County Administrator FROM: Anthony A. Dehaesus ; SUBJECT: Financing of Nursing Homes/ Director of Commun' Oopment Retirement Facilities In response to the Boar 's referral of October 22, 1985 regarding the financing of nursing homes/retire'ment facilities, the following information was developed. For purposes of the presentation, I have divided the information into three areas: 1) the financing of residential care facilities in which minimal medical care is provided; 2) the financing of nursing homes in which more extensive medical care is provided; and 3) the effect of tax reform proposals on the financing of such facilities. Residential Care Facilities Residential care facilities are limited care substantially independent living environments. Such facilities are generally characterized by limited on-site medical support systems and common dining. Living units typically do not have full kitchens. In terms of living environments, the units are a cross between an independent living situation, i.e., akin to a rental housing project, and an institutional or congregate care facility. This characteristic effects how such units can be financed with tax exempt bonds. In order to finance rental housing projects pursuant to federal law, the living units must have full kitchens and baths in each unit. Lacking full kitchens, residential care facilities don't qualify for tax-exempt housing bond financing. Such facilities do, however, qualify as ellible facilities for financing pursuant to federal law for industrial development bonds (IDB sl Unlike. federal law, State law provisions are basically the opposite. State enabling statutes as they relate to tax-exempt housing finance do not specify that "housing units" must contain full kitchens and baths. Further, California IDB law as it relates to cities and counties would not allow the financing of a residential care facility. While federal and State law combined would seem to preclude any tax-exempt bond financing of a residential care facility, a creative means of structuring such financings has been developed. The hybrid solution is to sell tax-exempt bonds for residential care facilities as an IDB pursuant to federal law, and as a housing project pursuant to State law. On December 10, the Board will receive a recommendation from this department to sell just such hybrid bonds for the Moraga Royale development, a 95-unit residential care facility in Moraga. The owners of the development, a partnership comprised of the principals with Goldrich & Kest, are a profit motivated entity. Phil Batchelor ' page 2 November 26, 1985 The question of financing such facilities to be owned by a church or other non-profit organization does not dramatically change the analysis above. It should be noted that facilities used for purposes not directly related to the exempt purposes of a 501(c)(3) organization are not eligible for tax-exempt financing. Property financed would also have to be owned by the 501(c)(3) non-profit organization. A non-profit party as an owner/developer does alter the manner in which the real estate and credit underwriting of any project would occur. Given that most tax-exempt bonds for housing involve some sort of credit suport, a credit institution providing said support (letter of credit, collateral, security bond, etc.) would evaluate the financial feasibility of the project and the capabilities of the owner/developer to undertake and complete the project. A non-profit with little or no development experience would incur significant difficulties in this process. Alternative approaches for inexperienced non-profits could include a joint venture with an experienced private firm or with an experienced non-profit. Additionally, under some circumstances, a privately placed bond issue with one buyer who understands fully the nature and risks inherent in a development may be an alternative. Such a transaction, while atypical, may be able to structured for "unusual" projects or for projects of a philanthropic nature. Nursing Homes Our level of knowledge in the area of nursing home financing is limited. Based on limited research, it is our understanding that California law severely restricts the power of counties relative to the financing of such facilities. One mechanism that may be applicable is the use of Certificates of Participation (COP's). This financing technique provides long term financing through the sale of Certificates of Participation in a lease. Certificates of participation may be structured so that the security is solely revenue (lease payments), or revenue with a third party credit support/guarantee, or by a pledge of general revenue or other public revenues. Because restrictions relative to the public sale requirements as they relate to real property are less onerous for cities, a structure involving the County as issuer and a city as intermediary may make some sense. With respect to real estate underwriting and credit support, if the leasing party is a non-profit, the same concerns and limitations described under the residential care portion of this memorandum would be applicable. Tax Reform The tax reform, proposal recently approved by the Housing Ways and Means Committee would continue to permit, with additional restrictions, the issuance of tax-exempt bonds for various purposes, including those involving 501(c)(3) non-profit organizations. The primary non-profit users of tax exempt financing are hospitals and colleges, although other 501(c)(3) organizations are eligible. The major limitation is the imposition of a single volume limitation on all permitted "nongovernmental" bonds. The annual volume limit of $175 per capita would be applied on a state-by-state basis. At least $25 per capita would be required to be reserved for 501(c)(3) organizations. This feature of the tax reform proposal reported out of the Ways and Means Committee has been critized on a variety of fronts. First, some maintain that the $25 per capita amount for non-profit organizations does not begin to meet the demand, and therefore non-profits would be competing for volume cap authority with IDB's, housing bonds, student loan bonds, utility bonds, etc. Non-profit organizations maintain that this leaves them in a politically vunerable position. A second concern, which exists on a general level, is that the volume cap concept is difficult in administer and shifts power to the State allocation agency - in California, the State Treasurer - and makes every bond issue a potential political event. AAD/mbli