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Are Reserve Funds of Continuing
Care Retirement Communities in Jeopardy?
An Alert for CCRC Residents

By Lillian L. Hyatt, M.S.W., and a Resident of a CCRC

Excerpted from the Summer 2007 The CANHR Advocate newsletter

Robert Thompson, Staff Counsel of the Continuing Care Contracts Branch (CCCB) of the California Department of Social Services, addressed the California Continuing Care Residents Association (CALCRA) Annual Board Meeting on April 14, 2007, in San Francisco. He informed CALCRA members that the Episcopal Homes Foundation (EHF) and Lytton Gardens of Palo Alto were forming a new corporation, JTM, to oversee 500 low–income housing units for the elderly. Of interest to all CCRC residents is the way this new corporation will be funded. A ten million dollar loan will be made to JTM and will be taken from the CCRC reserve funds controlled and operated by EHF that operates 5 CCRCs in the Bay Area*. This corporate restructuring was given approval on April 20, 2007, by CCCB with the condition that there be two separate boards of directors. Under this arrangement, JTM is not on EHF’s CCRC certificate of authority, and therefore, is not subject to regulatory oversight by CCCB.

CCRC residents in the EHF facilities have strenuously objected to these “legal sleight of hand” maneuvers, and to the use of reserve funds to make a $10,000,000 low–interest loan to a new corporation, JTM. They believe the financial integrity of their CCRC has been compromised. Bernard Werth, member of the CALCRA Board of Directors and a representative on the CCCB’s Statewide Advisory Committee, informed meeting participants that further approvals are still needed, including from the Attorney General, Federal Housing Authority and the City of Palo Alto.

Providers tell present and prospective residents that the reserve funds are established to insure the CCRC’s financial stability, and provide for the future security of people who pay over a large portion of their life savings to buy the assurance of care for the rest of their lives. If not–for–profit CCRCs are permitted to take money out of the reserve funds for other purposes of the corporation or forming new corporations, how secure is the future for CCRC residents? (Neither law nor CCRC contracts protect residents’ rights in the case of a provider’s bankruptcy! In fact, the CCCB in the Marguerite Terrace closure has called such rights a “business matter” not under their jurisdiction.) Will the JTM strategy set a dangerous precedent for the CCRC industry to raid reserve funds to establish new corporations that could undermine existing commitments to CCRC residents?

Another factor that must be considered is the financial strength of Lytton Gardens that is securing the loan to JTM. What if the loan is not repaid? Will more money be taken out of the EHF reserve fund to rescue the new corporation? Walter Rozett, President of CALCRA, raised the question, “Could this transaction actually be a bailout for Lytton Gardens of Palo Alto?” The sad result might be that CCRC residents’ futures could be sacrificed without their input and consent to the use of money they entrusted in good faith for their financial security and long term care needs.

Shouldn’t residents have the right to know before entering into a contract that their funds might be used for other purposes of the non–profit organization? Without this disclosure, isn’t this a form of involuntary charity? Once becoming a resident, why don’t residents have a deliberative say in financial decisions that so directly affect their lives, finances, and future security? This is clearly “taxation without representation!” Will this spark a revolution in consumer demands that might reshape CCRC provider practices of transparency and accountability?

*EHF CCRCs: Canterbury Woods in Pacific Grove, Los Gatos Meadows, St. Paul’s Towers in Oakland, San Francisco Towers, and Spring Lake Village in Santa Rosa.