| Return to the Brecht Associates Site Public/Private Financing: The Key to Affordability by Susan B. Brecht and Pamela A. DeLissio, NHA Can a continuum of care be created for low income seniors? That question has been at the heart of many dialogues and debates in recent years, while at the same time, in Philadelphia, a deal has been structured and construction is under way on a model project to serve elderly with limited financial resources. The innovative organization behind this project is Kearsley, the nation's first retirement community, which opened its doors in 1778 and has been in continuous operation since. Through a creative combination of public and private financing sources, Kearsley is creating a continuum of care from independent living to assisted living and nursing care that has been recognized by the American Association of Homes and Services for the Aging (AAHSA) as a national model for other organizations to follow. This article illustrates the elements that have lead to Kearsley's success and which are components of the model which warrants replication. Kearsley: Yesterday, Today, and Into the Twenty-First Century Kearsley is a not-for-profit organization, founded by Dr. John Kearsley 223 years ago as Christ Church Hospital. Christ Church Hospital (the word originally conveyed "hospitality") occupied a building designed by William Strickland which still stands today. It was able to accommodate 40 residents in its 24 rooms. The organization which is now known as Kearsley has a mission of helping low income older adults to live as independently as possible in a quality, safe and supportive environment. Kearsley is located on a beautiful 13-acre campus in the Wynnefield section of Philadelphia. Its pastoral setting belies its immediate proximity to the many services and amenities that lie within several blocks of its location. Before initiating the expansion to a full continuum, Kearsley consisted of an 87-unit HUD 202 apartment building and a 20-bed nursing facility. Kearsley's residents reflect the City's diversity: 50 percent are African-American; 44 percent are European-American; 4 percent are Asian-American; and 2 percent are European. Although the income guidelines for apartment residents allow for a maximum annual income of $16,500 per person, nearly half of the residents have incomes of less than $500 per month. Ninety-five percent of the nursing home residents receive Medical Assistance. Kearsley is a lifeline to many of its residents; approximately 25 percent do not have any family or friends available to help them. Several years ago Kearsley recognized that it could be doing more to serve the special segment of the population that it had traditionally targeted. Planning began with the aid of MPB Architects, a Philadelphia-based firm with a history of accomplishments in designing housing for older adults. When completed, Kearsley's master plan included the construction of 100,000 square feet of new construction that would bring the nursing home from 20 to 84 beds, and would add the critical missing element in the continuum, a 60 unit assisted living component. Kearsley's commitment to maximizing the dignity and independence of its residents is clearly reflected in the design of the new buildings. The assisted living consists of 270 square foot studio apartments designed for private occupancy. Each unit has a full bathroom with a shower that can accommodate a shower chair for safety and comfort and small kitchenette with a microwave and small refrigerator. Each apartment is designed to include a large window providing ample light. Wall-to-wall carpeting, individually controlled heat and air conditioning, and telephone and cable TV hookups will provided in each unit. While many assisted living communities offer semi-private rooms as a way to serve lower income residents Kearsley's unit design achieved the goal of creating an attractive home without sacrificing the privacy of single occupancy. This design philosophy extended to the nursing home as well where 28 of the 84 beds are private, and the remaining semi-private rooms are configured to maximize resident privacy. The semi-private rooms are designed in an L-shape, enabling each resident to have a separately defined space complete with its own window. In addition to the assisted living apartments and nursing home, Kearsley's construction program included a new kitchen, a main dining room, a multi-purpose room, gift shop, beauty shop and snack shop, as well as three landscaped courtyards offering residents the chance to garden and enjoy the beauty of Kearsley's setting. Construction is now nearing completion and Kearsley will open the doors of its new facilities in December, 1995. Future residents with limited incomes will continue to find a home in Kearsley's assisted living and nursing home. Residents of assisted living will pay between $400 and $500 in rent, and will pay on a sliding fee scale, based on income, for additional personal care services. It is expected that many of the residents will receive SSI supplements that will bring their income to no more than $772 per month which will be used to help pay the cost of rent and some services. Kearsley plans to create an annuity fund initially capitalized at approximately $775,000 to generate further income to subsidize the cost of services for assisted living residents. Approximately 80 percent of nursing home residents are expected to be Medicaid eligible. Kearsley's Public/Private Financing Structure Planning for the expansion necessarily had a two-fold focus encompassing both the physical expansion and the financing necessary to accomplish it. Each had to be given equal weight in order for Kearsley's vision to be realized. Without an innovative combination of public and private financing which minimized debt, Kearsley could not continue its mission of serving low income older adults. Advance planning for the project's financing was extensive, thoughtful, and marked by innovation and drive. With the assistance of a development consultant, Kearsley crafted a plan that incorporated significant public financing with particular emphasis on debt-free sources as well as a private capital campaign designed to raise funds from foundations, corporations and individuals. A variety of government program funds were identified as was a public sector "champion" of Kearsley's cause. In 1992, with the help of City Councilman Michael Nutter, who was then in his freshman term in Philadelphia's City Council, the plan began to take shape and gain force. Fifteen months of strategizing and lobbying at the City and State levels took place. Kearsley was asking public officials to join them in their quest for innovation in financing. At the City level, Kearsley obtained a $1.5 million Community Development Block Grant (CDBG). This was the first time that any organization had approached the City's Office of Housing and Community Development with a request for such a project and the first time such funds were awarded for an assisted living community. It was also the maximum amount that could be awarded to any one program. Securing the CBDG funds paved the way for Kearsley to obtain other crucial government funding. With the strength of the City's commitment to the project, Kearsley approached the Pennsylvania Housing Financing Agency, obtaining $1 million of HOMES funds in 1993. This represented one of the Commonwealth's first awards for this type of project. With these two important sources of funds secured, Kearsley was able to apply for and receive an allocation of federal low income housing tax credits. Yet another first for this use, Kearsley received an allocation of $3.6 million. With the enormous success in securing debt-free funds in place, Kearsley was ready to launch its capital campaign to raise just under $4 million in equity for the project. The capital campaign committee consisted of Kearsley Board members and volunteers who helped to raise funds from four key sources: foundations, organizations, corporations, and individuals. Approximately 56 percent of the funds were targeted to foundations, while the second largest share targeted major gifts from individuals contributing $10,000 or more. As the capital campaign successfully progressed, Kearsley's own residents supported it with donations totalling $14,467! The remaining portion of the expansion's financing came from $4.16 million in tax-exempt bonds, sold to help finance the nursing home and through a $1 million subsidiary loan from the Philadelphia Industrial Development Authority's Neighborhood Development Fund (See Sources and Uses of Funds). Taken as a whole, the project financing package includes 50 percent equity (including the tax credits), 33 percent debt and 17 percent debt-free government funds. The assisted living component of the project was financed essentially with debt free funds, resulting in a significant lowering of the cost to the residents because of the elimination of debt service payments. The nursing home financing sources are comprised of approximately 29 percent equity and 71 percent debt, with debt service payments allowable under Pennsylvania's Medicaid reimbursement policies.
Organizational Structure In order to accomplish the financing a new organizational structure including both non-profit and for-profit entities had to be put into place at Kearsley. Kearsley Long Term Care Center (the Company), a non-profit single member corporation was created to own and operate the nursing home facilities. The sole member is Christ Church Hospital, Inc. (CCH), the original non-profit in existence since 1772. The Company is the sole obligor of the tax exempt bonds, and none of the assets or revenues of CCH or any of its other affiliates are pledged to the repayment of the bonds. CCH has transferred the existing 20 nursing home beds to the Company, but continues to own the existing 87-apartment housing facility on the campus. In order to be able to utilize the tax credits, as a separate project, Kearsley Limited Partnership was formed of which Kearsley General Partner, Inc. is the general partner. The limited partnership will undertake the construction of and own the 60-unit assisted living component of the project. Kearsley General Partner, Inc. is currently owned by CCH. Royal Bank of Pennsylvania is the sole limited partner in the limited partnership. The nursing home, apartments and assisted living facility are each structured as separate and distinct projects, with independent financing, ownership and operation, although they all share the same campus and are connected physically. The nursing home and assisted living facilities constitute separate condominium units with certain rights of access between each other and the housing facilities. A Model to Be Replicated The Kearsley continuum is included in a technical assistance manual being developed by AAHSA and funded by the Administration on Aging because it represents elements which can be replicated. Both tangible and intangible elements are required for successfully implementing this model elsewhere. Given the mission of the organization and its willingness to forego the substantial fee income that can be derived from development, a true non-profit organization is best suited to be the project sponsor. That sponsor should be both dedicated to the provision of quality housing and services for seniors and experienced in implementing such a program. Kearsley's extensive familiarity with serving the target market and managing an operation that is exceedingly efficient is a key element in the success of the expansion plans. The ability to create the type of organizational structure that incorporates both non-profit and for profit elements in order to maximize funding opportunities is also more characteristic of a non-profit organization. A second and equally important component of the project model is the ability to maximize debt free financing resources. If necessary, sponsors must be prepared to break new ground in the public finance arena, if necessary, as Kearsley did. The history and reputation of the organization is, therefore, critical not only to operating the community but to its financing as well. This is not the type of undertaking likely to succeed with a well-meaning local sponsor without a significant track record in the industry. Part of Kearsley's success in raising public funds was a well-orchestrated campaign that recognized that the first piece of funding that fell into place would help pave the way to all others. The assistance of a local political support system with a single, strong champion was a key element in securing the first financial commitment, and ultimately to securing the others. While significant outside public funding sources were being pursued, Kearsley recognized that the way to obtain the sizeable equity infusion necessary to make the project work was through a major capital campaign. A dedicated fund development staff member on the management team working in concert with the President of Kearsley and its Board leadership was essential to planning and implementing the capital campaign. In addition, an organization seeking to replicate Kearsley's approach needs a committed Board and group of volunteers who are excited about the vision of the organization's leadership. Kearsley's mission was compelling. Its leadership was so successful in communicating their excitement that many volunteers found that becoming part of the team was nearly irresistable. Perhaps the most important intangibles in the Kearsley equation were vision and tenacity. A project such as Kearsley's required all members of the team to create a future that takes the strengths of the organization and multiplies them. In addition, that vision had to encompass the ability to withstand potential industry changes while continuing to support the mission. Kearsley has faced these kinds of issues and is prepared and positioned for change. They recognize that their Section 8 rent subsidy could be converted to a voucher system, and believe that such a system would be beneficial to interest in and occupancy of the apartments. With regard to the assisted living component, Kearsley is not depending on the possibility that operational subsidies will become available if Pennsylvania creates a Medicaid waiver system, as other states have. Instead, they have created an internal subsidy source by establishing a 20-year annuity fund originally established with the developer's fee and maintained by ongoing fundraising. Finally, with regard to the nursing home, where the greatest impact would be felt if Medicaid reimbursement were substantially changed, Kearsley has created a design which would support its ability to serve a higher proportion of private pay residents. Half of the rooms are designed for private accommodations, and the semi-private rooms are designed in an L-shape giving each bed its own window and distinct space. These design elements maximize dignity and privacy and are conducive to the private pay market. In addition, the nursing home is composed of four 21-bed units, which would enable Kearsley to designate a unit for a specific type of care, or even convert it to assisted living. Tenacity was the final element in Kearsley's success. For a period of several years, it appeared as if the words "no" and "can't" had been eliminated from the vocabulary of all involved in this exciting project. Belief in the ability to achieve what they had set out to do, and the pragmatic assessment of how to implement plans never waivered. As a result, by the end of 1995, Kearsley's heritage of being a pathfinder in the care of the elderly will once again be reasserted. Through a combination of all of the elements delineated throughout this article, Kearsley will emerge first in Philadelphia, and a national leader as well, having created a path that others now can and should follow. Susan B. Brecht is President of Brecht Associates, Inc. a Philadelphia based consulting firm specializing in planning and feasibility analysis for retirement housing and assisted living communities. Pamela A. DeLissio is President of Kearsley. Return to the Brecht Associates Site | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||