By Jack Cumming

Gerontology textbooks tell us that what we now call “the senior living industry” started with almshouses for homeless, aged, indigent people. It was common for such last-resort almshouses to be affiliated with churches or other charitable organizations. The operating authorities were “wardens” or “superintendents,” empowered to act with authority. [Source]

Business or Charity?

Today, the industry is a money-making business. Many senior living businesses, particularly Continuing Care Retirement Communities (CCRCs), claim tax exemption under IRS Revenue Ruling 72-124, which allows them to avoid taxes despite profitable operations. They need not be dependent on charitable donations. The charitable rationale is that aging is distressing.

There appears to be confusion even among not-for-profit cognoscenti about this non-monetary rationale for tax abatement. Despite the revenue ruling, many market-priced, fee-supported CCRCs engage in “philanthropic” efforts. These can appear to be window dressing to justify their tax exemption and to burnish their brand. The paradox is that it’s not harder to spend more to avoid taxes than just to go ahead and pay them. Some, but not all, do pay PILOT fees (Payments In Lieu Of Taxes).

Natural Communities

Charities can be bottom-up, as when communities come together for a shared purpose, like threshing, barn raising, or childcare. They can also be top-down, as when missionaries bring modern economics to poverty-stricken indigenous communities. Since the housing, care, and social welfare of older people are inherently communal, that quasi-charitable mission can be either.

Because CCRCs are largely top-down — often started by clergy, but now generally run by business executives — financial considerations often prevail. There is a difference, though, between many for-profit entities and those that are not-for-profit. Not-for-profits are sometimes dismissive of money, but money is critical to sustaining a sound organization over time. On the other hand, many for-profit organizations buy into a gospel of greed, prioritizing corporate aggrandizement over mission and consumer value.

Think of it this way. If you were choosing a lifetime commitment for yourself or a loved one, which would you be more likely to trust: (1) an organization run by, for, and with resident owners/members, or (2) an organization with no members and no evident owners, with governing executives reporting to a board without meaningful resident input?

Contract or Speculation

Resident entrance fees in many not-for-profit CCRCs are used as equity investment capital. However, they are solicited as consideration for a contract. This questionable practice shows the clear and material distinction between top-down and bottom-up thinking. When management stumbles, residents are at the bottom of the financial priority ladder. That’s corporate, not stewardship.

Not surprisingly, an empowering movement among ordinary people is beginning to take shape as a viable alternative to the predominant corporate concept among CCRCs, for-profit or not. That movement was detailed in a recent article. As people live longer, more vigorous lives, they are less likely to tolerate the demeaning disqualification that today’s residency too often requires.

Strategic Thinking

Any enterprise should regularly review its strategic options. The process begins when either the CEO requests a study or a board member or members request a briefing from the CEO. The study can be carried out by an outside analytical firm, such as the Boston Consulting Group, or internally by a scholarly-minded executive. Implementation of change is likely to require a bold commitment to the mission, namely, harboring and empowering those who are aging.

Will the industry adapt or be superseded? It’s hard to tell. Today’s largely not-for-profit industry may have started as charity for the downtrodden, but we are living longer. The need is for services that recognize this new, more vital customer reality.