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LeadingAge North Carolina released a 5-page white paper this summer that outlines financial reserve requirements for Continuing Care Retirement Communities (CCRCs). North Carolina CCRC Reserve Requirements addresses issues relating directly to North Carolina’s regulatory environment. But the topics it discusses also apply to many CCRCs in other states, says Steve Maag, director of residential communities at LeadingAge.
The regulation of CCRCs in North Carolina began in the mid-1980s when state lawmakers passed legislation aimed at protecting CCRC consumers without inhibiting the development and operation of CCRCs within the state. North Carolina requires that a provider maintain an operating reserve equal to 50% of its total operating costs over a 12-month period. If a community maintains an occupancy level in excess of 90%, a provider must maintain a 25% operating reserve.“This legislation – and the resulting disclosure and reserve requirements – explain in large part why North Carolina has been such a successful state in terms of CCRC development and operations and relatively more problem-free than many other states,” says the paper.
Most CCRCs remain fundamentally strong and financially sound despite the economic downturn of 2008, according to the LeadingAge North Carolina paper. One reason for this is that many CCRCs responded to the crisis by more tightly managing the expense side of their operations. In spite of this diligence, however, factors outside the control of CCRCs continue to affect their economic health and occupancy levels. Two key factors include:
Occupancy levels are not the only indicator of a CCRC’s financial health, says the report. CCRCs can also measure themselves against a number of key indicators that assess their liquidity, profitability, capital investment and debt/risk ratios. These indicators include: