✨ Pricing; Costs; Finances

The debate you are addressing is important because it's about the proper stewardship of your community pooled assets. Ideally we want them to be maintained and built upon, not exhausted. Sustainability is the concern. I asked ChatGPT about best practices. The attachment is the initial response. It was still "thinking" whan I posted this.

Always be cautious in relying on AI analysis --- it makes mistakes. However, I think you will find the analysis useful in arriving at benchmarks for assessing the appropriateness of your community's approach to the topic. Please share any thoughts or questions. NaCCRA may publish some best practices in the future.

Richmond Shreve

NaCCRA Vice President

Forum Moderator

I appreciate your reply, David. You described the approach your community takes very well. This is helpful.

I am hoping to also get input from some nonprofit communities.

Best of regards,

Deborah

My CCRC is for profit and owners depreciate capital expenses on their books.

Operating expenses are funded by resident monthly fees and depreciation is not included as one of those expenses. Rather, we have an operating expense to fund a Capital Item Replacement Reserve. It is a percentage of total revenue and is set aside to repair and replace plant and equipment. Owners are responsible for the exterior of the buildings and any never before installed capital items, residents, through the CIRR, all other capital expenses (defined as over $1,000).

When the CIRR is in the red, owners "loan" it funds (interest free) to cover the shortage with the expectation that future contributions will exceed outflows bringing the balance down.

Does your community include depreciation expense when calculating expenses that are needed to be covered by monthly fees?

There is debate here because depreciation is related to capital assets and is a non-cash expense. The related cash impact is when capital/cash is accumulated through entrance fees and realized investment earnings on the entrance fees and this cash is used to purchase capital assets which are then depreciated. Depreciation is a non-cash expense.

The other arena is operating expenses (cash out) which are funded by monthly fees (cash in).

Please advise as to how your community handles this. Depreciation is currently the largest expense for our community.

We are a non-profit CCRC and we do not pay taxes that we need to decrease through depreciation expense.

Thank you.

Deborah Ryan

Middleton Glen

Middleton, Wisconsin