By Jack Cumming
Building and expanding CCRCs is a capital-intensive business, and nonprofits have limited access to capital. Since nonprofits’ only “ownership” is an abstract state commonwealth concept, they have no access to ownership risk-bearing capital in the equity markets. Many CCRCs have used entrance fees to meet these risk equity needs.
Keeping Contractual Faith
Entrance fees are partial consideration for a residential agreement. Accordingly, accountancy treats them as obligated toward those contractual undertakings. The result is that many nonprofits operate with what is euphemistically referred to as a “negative net asset position.” In other contexts, this condition would be considered an impaired balance sheet, but most CCRC providers dismiss it as a natural occurrence common in CCRCs.
Despite that optimistic view by providers, however, there can be no doubt that a negative net asset position represents an erosion of resident financial security. Having access to equity capital could provide a solution. Thus, we are left with the question of whether it’s the nonprofit form that is appealing to the industry, or is it the values we associate with nonprofits?
Could the market-priced, open-market CCRC industry better serve its public by substituting principles for form? I believe that the answer is that it could, can, and should.
These ideas are explored in a longer paper to which there is a link below. The paper — actually more still just an article — seeks to consider what some of those principles might be. It would take wider discussion, and adoption of the premise by an industry organization, to give credence to this approach. That approach would be more trustworthy than what we have today.
Moreover, a change in corporate form could better meet mission objectives to empower residents. Today’s model of management oversight, with only advisory input from residents and families, is better suited to a charitable model of caring for the frail and failing.
That is more like what might be expected for high acuity assisted living and more. It is not consistent with the broader market for simplified living which we associate with younger residents. Those younger, still independent residents expect more self-determination, and the industry can give it to them.
Let’s Begin the Conversation
Click here to find the larger paper exploring these ideas. This is just the beginning of a conversation that is long overdue. Is the senior living industry too wedded to defending its nonprofit status? Is the industry too skeptical of the good intentions of for-profit providers? Is the industry too wary of its residents? I believe that the answer is “yes” to all three questions. It’s time that the disconnect between form and mission is recognized and addressed.