Major CCRC Finance Provider Mobilizes Against Tax Bill Threat

December 5, 2017, Alex Spanko, Skilled Nursing News - Industry groups and senior housing financing players are hoping a last-minute advocacy push can convince Congress to save a key funding mechanism for non-profit operators — but there are few guarantees as the Republican-backed tax bill goes to reconciliation.

The House version of the GOP’s sweeping rewrite of the U.S. tax code includes the elimination of private activity bonds (PABs), tax-exempt funding sources that many non-profit developers of continuing care retirement communities (CCRCs) depend on for new construction and renovations.

The bill that passed the Senate early Saturday morning doesn’t include the provision, and industry players are scrambling to raise awareness of the issue before the GOP’s desired target delivery date of Christmas.

“We’re not sitting back and feeling comfortable knowing that the Senate bill does not include the elimination of private activity bonds, because as we all know, it’s not over until it’s over,” Lisa McCracken, director of senior living research and development at Ziegler, told Skilled Nursing News.

The Chicago-based speciality investment bank topped the 2016 list of municipal bond underwriters for senior living providers, logging nearly $3 billion in financing — dwarfing second-place Piper Jaffray & Co., which saw $656 billion in municipal bonds during that time.

Given the products’ importance to Ziegler’s business, the company has embarked on an advocacy push, reaching out to bankers and partners across the country to emphasize the danger facing the non-profit senior living and health care sectors.

Should the government end tax exemptions for PABs, non-profits could see their cost of capital balloon by a third, according to an analysis by industry group LeadingAge.

“The trickle-down of this is really [that] it will very much stymie any type of growth and reinvestment,” McCracken said, characterizing the PABs as vital to activity in the space.

“For many of them, the numbers won’t work.  The big-picture concern we have is how it would stall the sector,” she said.  “There’s always money out there, but what’s the price for it?”

Of course, the Senate and the House still need to resolve differences between their separate versions, and even House leadership isn’t sold on including them: House Ways and Means Chairman Kevin Brady, a Republican representative from Texas, said the exclusion of PABs from the bill was merely a starting point for negotiations.

“Part of the reason for addressing it in the House version was to have this discussion about should they continue, and if so, in what form,” Brady said last week, according to trade publication Bond Buyer.

PABs aren’t just used in senior housing; the tax-exempt bonds can fund infrastructure improvements on roads and bridges, build affordable housing, and drive various other public-private investment partnerships.  While Ziegler’s $2.8 billion in senior-housing municipal bond financing topped the chart in 2016, its overall number of $4.6 billion—taking into account other types of projects—was only good enough for 16th place when considering all the different uses for the bonds. Bank of America Merrill Lynch came in first with $67.8 billion.

So even if lawmakers choose to retain PABs for certain uses, McCracken said, they could also restrict it for others — for instance, allowing for PABs to fund infrastructure, a key Trump administration priority, at the expense of senior housing development.

“There are probably some conversations where they’re not looking at PABs as one lump group,” she said.  “There may be some teasing out.”

Still, Ziegler and LeadingAge have pointed out the relatively small benefit of cutting PAB tax exemptions against the entire tax-cut package: While the legislation would cause an estimated $1.5 trillion in overall government revenue declines, removing the PABs’ tax exemption would contribute just $39 billion to help offset that, according to LeadingAge estimates.  

“You’re really not getting a lot from eliminating them,” McCracken said.

In related news, senior housing industry associations are keeping a close eye on the fate of the medical expense deduction, which would be preserved in the Senate version of the tax bill but eliminated in the House version.  The Senate version would also temporarily lower the threshold for claiming the medical expense deduction from 10% of adjusted gross income to 7.5%.

“ASHA has been very active in lobbying both the House and the Senate to retain the medical expense deduction,” Jerry Frumm, Senior Lifestyle’s vice chairman and chief investment officer, as well as chairman of the American Seniors Housing Association (ASHA) Public Policy Committee, told SNN.  “It is in the Senate bill.  We are very interested in seeing that it survives the reconciliation process… it directly affects our residents.”