Current through Register Vol. 47, No. 12, March 26, 2025
(a) Unless specifically otherwise provided
for in this Title, costs of ownership of real property shall be allowable in
the amount of depreciation, interest, costs of alteration, construction,
rehabilitation and/or renovation to real property, and costs attributable to
the negotiation or settlement of sale or purchase of real property in cases
where:
(1) OPWDD and the Division of the
Budget first approved the property costs before June 1, 2010; or
(2) OPWDD and the Division of the Budget
first approved the property costs on or after June 1, 2010, but the costs were
previously funded, in whole or in part, by New York State, any other state or
the Federal government.
(b) Unless specifically otherwise provided
for in this Title and except as provided in paragraph (a)(2) of this section,
costs of ownership of real property shall be allowable in the amount of
interest and principal or provider equity (see Subpart 635-99 of this Part), in
cases where OPWDD and the Division of the Budget first approved the property
costs on or after June 1, 2010.
(c)
Notwithstanding the provisions of subdivision (a) or (b) of this section, costs
of ownership of real property shall be allowable in the amount of costs related
to loans from the Dormitory Authority of the State of New York (see Subpart
635-99 of this Part).
(d)
Reimbursement for principal and interest or provider equity and interest is an
allowance in lieu of reimbursement of interest and depreciation associated with
the property, and in lieu of reimbursement of the underlying allowable costs,
which may include allowable start-up costs, for which the mortgage, loan, or
other financing is received.
(e)
Depreciation is based upon the historical cost and useful life of buildings,
fixed equipment and/or capital improvements, alterations, rehabilitation and/or
renovations.
(f) Principal shall be
the amount which the provider borrows for the purchase, alteration,
construction, rehabilitation and/or renovation of real property, for costs
attributable to the negotiation or settlement of sale or purchase of the real
property and for other reasonable and necessary costs related to such purchase,
alteration, construction, rehabilitation and/or renovation, including, but not
limited to, design fees and short term interest. Principal shall be allowable
in the amount approved by OPWDD and the Division of the Budget, but shall not
be greater than the lesser of:
(1) the
historical cost; or
(2) the amount
the provider actually borrowed.
(g) The commissioner may allow provider
equity in an amount not to exceed fair market value if the provider
demonstrates that allowing such provider equity:
(1) is necessary in order for the facility or
program in question to continue to operate, or is necessary in order for the
facility or program to open;
(2)
would be an economic and efficient use of resources; and
(3) would be in the best interests of the
persons who are receiving or will receive services at the facility or program
in question.
(h)
Historical cost shall be determined as follows:
(1) The historical cost of any real property
which is transferred, purchased, altered, constructed, rehabilitated and/or
renovated shall be equal to the amount approved by the OPWDD and the Division
of the Budget. In deciding whether to approve any such cost, OPWDD shall
consider whether the provider's reimbursement as a whole for the services in
question, including the cost of purchase, transfer, construction, alteration,
rehabilitation and/or renovation to be approved, would result in payment which
is consistent with efficiency and economy. In no event shall OPWDD or the
Division of Budget approve an historical cost which exceeds the lesser of fair
market value or the provider's or individual's actual cost.
(2) The historical cost of any real property
which is transferred or purchased from a party related to the provider or
individual is the lesser of fair market value or the acquisition cost of the
real property to the transferor or the seller.
(3) The historical cost of any real property
which is altered, constructed, rehabilitated and/ or renovated by a party
related to the provider or individual is the lesser of:
(i) the fair market value of such alteration,
construction, rehabilitation or renovation; or
(ii) the related party's cost of the
alteration, construction, rehabilitation or renovation.
(4) Where the previous owner of the real
property had the costs of such property funded, in whole or in part, by OPWDD,
(i) the historical cost of the property shall
be the least of:
(a) the acquisition cost of
the property to the new owner;
(b)
the seller's net book value (see glossary, Subpart 635-99 of this Part);
or
(c) fair market value;
or
(ii) notwithstanding
the provisions of subparagraph (i) of this paragraph, where the previous owner
of the real property had its costs of ownership of the real property approved
by OPWDD, and a substitute provider is designated to operate the program at the
same physical location, the substitute provider may take the place of the
previous owner under the terms of OPWDD's approval of the previous owner's
costs.
(5) If the
previous owner is related to the provider or individual purchasing the
property, any amount paid by the State to the provider or individual for rent
equal to depreciation on the property shall be counted as paid depreciation and
as funding for the costs of such property.
(6) If the seller or transferor of the real
property to the provider or individual is not a party related to the provider
or individual, but any prior owner of the property in question is a party
related to the provider or individual, and the sale or transfer from the prior
related party occurs within five years of the sale or transfer to the provider
or individual, the transaction shall be deemed to be between the provider or
individual and the prior owner related to the provider or individual.
(7) If OPWDD cannot determine the historical
cost of real property, OPWDD shall use an appraisal value as the basis for
depreciation. The appraisal value shall be based upon an appraisal which is
done by OPWDD or by an appraiser approved by OPWDD, which uses an appraisal
methodology which is generally accepted within the profession and which is
factually correct in all significant matters. OPWDD shall approve an appraiser
if one of the following tests is met:
(i) the
appraiser is a New York State certified or licensed appraiser; or
(ii) no licensed or certified appraiser is
available in the geographic area in which the property is located; the
appraiser is recommended by another State agency and, in OPWDD's opinion, the
appraiser has the professional experience and qualifications to do the
appraisal in question.
(8) The commissioner may allow an alternative
historical cost of ownership of real property obtained from a related party.
(i) The commissioner may allow such
alternative historical cost if following conditions are met:
(a) the provider or individual demonstrates
that allowing such alternative historical cost would make property available to
individuals or providers which would not otherwise be available;
(b) such alternative historical cost is
substantially less than the cost which would be allowed under this Subpart for
property which is obtained from an unrelated party and which is of similar
function and value to OPWDD and to the provider or individual;
(c) the seller or transferor has owned the
property in question for at least five years; and
(d) the fair market value of such property is
greater than the seller's cost.
(ii) Such alternative historical cost may be
greater than the cost of the property to the transferor or seller, but shall
not be greater than the lesser of:
(a) the
acquisition cost of the property to the provider or individual; or
(b) the cost of the property to the seller or
transferor, increased by one-half of the percentage increase (as measured from
the date of acquisition by the seller to the date of the change of ownership)
in the Consumer Price Index for New York - Northeastern New Jersey (all items),
as reported by the United States Department of Labor, Bureau of Labor
Statistics.
(iii) The
commissioner may allow an alternative historical cost only for transfers,
purchases, alteration, construction, renovation or rehabilitation, the terms of
which were agreed to after July 12, 2000.
(9) Alternative historical cost for a
substitute provider. Where the previous owner of the real property had the
costs of the property funded, in whole or in part, by OPWDD, and a substitute
provider is designated to continue operation of a program at the same physical
location, OPWDD may allow an alternative historical cost of the property to
exceed the seller's net book value (see glossary, section
635-99.1 of this Part). The
alternative historical cost may not exceed the acquisition cost of the property
to the new provider as approved and determined to be reasonable by OPWDD. The
alternative historical cost allowed under this paragraph is only available if
OPWDD determines that allowing such alternative historical cost:
(i) is an economic and efficient use of
resources; and
(ii) is necessary to
protect the health, safety, or welfare of the persons who are receiving or will
receive services at the facility or program in question.
(i)
Useful life and
amortization period.
(1) The useful
life of depreciable assets shall be the higher of the reported useful life or
the useful life from the Estimated Useful Lives of Depreciable Hospital Assets
(current edition), published by the American Hospital Association. This
document is available from:
(i) the American
Hospital Association, 840 Lake Shore Drive, Chicago, IL 60611;
(ii) it may also be reviewed in person during
regular business hours at the:
(a) NYS
Department of State, 99 Washington Avenue, Albany, NY 12231; or
(b) by appointment at the NYS Office for
People With Developmental Disabilities, 44 Holland Avenue, Albany, NY
12229.
(2)
The amortization period for principal repayment and provider equity shall be
the lesser of:
(i) the term of the
indebtedness, as approved by OPWDD and Division of the Budget, related to the
real property in question; or
(ii)
the remaining useful life on the asset.
(3) A provider or an individual receiving
services may use a different useful life or amortization period if such
different useful life or amortization period is approved by OPWDD. OPWDD shall
base such approval upon historical experience, documentary evidence, loan
agreements (if any) and need for the services for which the depreciable or
financed assets are used.
(j) The provider or individual shall use the
straight-line method of depreciation.
(k)
Interest costs.
(1) Interest costs shall be allowable if the
following criteria are met:
(i) The interest
rate is not in excess of the amount a prudent borrower would pay at the time
the loan was incurred.
(ii) The
loan agreement is entered into between the provider or individual and a party
not related to the provider or individual. The commissioner may waive this
provision based on a demonstration of need for the services and cost savings
resulting from the transaction.
(iii) If the interest expense results from
either start-up costs and/or the initial financing of the capital indebtedness,
the capital indebtedness shall represent all or part of the current OPWDD and
Division of the Budget approved value of the property, after subtracting any
equity contributions such as, but not limited to, grants applied to the
property.
(iv) In the case of
interest expense, or a portion of interest expense, resulting from the
refinancing of the capital indebtedness, the refinancing has the prior approval
of the commissioner and the Division of the Budget, and the interest is in the
amount associated with the outstanding principal balance prior to
refinancing.
(2)
Interest expense resulting from the inclusion of the reasonable closing costs,
such as, but not limited to, attorneys' fees, recording costs and points, is
allowable in the initial financing and start-up costs, and in the refinancing
of the capital indebtedness.
(3)
Interest income generated from the provider's revenues for the operation of the
services shall be used to offset interest expense incurred during the same
reporting period. Notwithstanding the foregoing, a provider is not required to
use the following to offset interest expense: income earned on qualified
pension funds, income from gifts or grants which are donor- restricted, or
income earned on secure investments pursuant to section
680.12(d)(10),
681.11(f)(1)(xi), (3)(iii) and
(iv),
681.12(c)(10)(xi), (xii),
(12),
686.13(i),
690.7(d)(2)(ii)
(
d), (
e) or (e)(9) of this Title.
(l) Where any real property for
which previous Medicaid payment has been made is transferred by sale, purchase,
acquisition or merger (other than as a result of a receivership under New York
Mental Hygiene Law, section 16.27), the costs (including legal fees, accounting
and administrative costs, travel costs and the costs of feasibility studies)
attributable to the negotiation or settlement of sale or purchase are not
allowable.
(m) Costs related to
Dormitory Authority loans shall be allowable as follows:
(1) The cost of principal and interest
payments on loans from the Dormitory Authority pursuant to subdivision 13-d of
section 5 of the Facilities Development Corporation Act, net of the portion of
such payments attributable to operating costs, are allowable; provided that the
reimbursement of such costs is an allowance in lieu of reimbursement of
interest and depreciation associated with the property, and in lieu of
reimbursement of the underlying allowable costs, which may include allowable
start-up costs, for which the Dormitory Authority loan is received. A provider
which receives a Dormitory Authority loan shall not have the option of having
included, in the calculation of its rate, fee or price, the loan's underlying
costs instead of the loan principal and interest payments.
(2) Operational period fees imposed by OPWDD
and annual administrative fees imposed by the Dormitory Authority in connection
with Dormitory Authority mortgage loans shall be allowable costs.
(3) Interest payments on Dormitory Authority
loans pursuant to this subdivision for capital indebtedness and start-up costs
will be considered allowable where interest expense results from capital
indebtedness and start-up costs in an amount equal to the OPWDD and Division of
Budget approved value of the loan.
(4) Interest payments on Dormitory Authority
loans pursuant to the provisions of this subdivision are allowable in excess of
the amount associated with the outstanding principal balance prior to
refinancing, if the purpose of the debt is to acquire assets to be used for
care of the persons served by the program or services and all other applicable
requirements of this Part are met.
