Section 651.035, Florida Statutes 2001
651.035 Minimum liquid reserve requirements.--
(1)(a) A provider shall maintain in escrow and as a minimum liquid reserve an amount equal to the aggregate amount of all principal and interest payments due during the fiscal year on any mortgage loan or other long-term financing of the facility, including taxes and insurance as recorded in the audited financial statements required under s. 651.026. The amount shall include any leasehold payments and all costs related to same. If principal payments are not due during the fiscal year, the provider shall maintain in escrow as a minimum liquid reserve an amount equal to interest payments due during the next 12 months on any mortgage loan or other long-term financing of the facility, including taxes and insurance.
(b) A provider which has outstanding indebtedness which requires what is normally referred to as a "debt service reserve" to be held in escrow pursuant to a trust indenture or mortgage lien on the facility and for which the debt service reserve may only be used to pay principal and interest payments on the debt which the debtor is obligated to pay, and which may include taxes and insurance, may include such debt service reserve in its computation of its minimum liquid reserve to satisfy this subsection, provided that the provider furnishes to the Department of Insurance a copy of the agreement under which such debt service is held, together with a statement of the amount being held in escrow for the debt service reserve, certified by the lender or trustee and the provider to be correct. The trustee shall provide the department with any information concerning the debt service reserve account upon request of the provider or the department.
(2)(a) Each provider shall maintain in escrow an operating reserve in an amount equal to 30 percent of the total operating expenses projected in the feasibility study required by s. 651.023 for the first 12 months of operation. Thereafter, each provider shall maintain in escrow an operating reserve in an amount equal to 15 percent of the total operating expenses in the annual report filed pursuant to s. 651.026. Where a provider has been in operation for more than 12 months, the total annual operating expenses shall be determined by averaging the total annual operating expenses reported to the department by the number of annual reports filed with the department within the immediate preceding 3-year period subject to adjustment in the event there is a change in the number of facilities owned. For purposes of this subsection, total annual operating expenses shall include all expenses of the facility except: depreciation and amortization; interest, insurance and taxes included in subsection (1); extraordinary expenses which are adequately explained and documented in accordance with generally accepted accounting principles; and changes in the obligation to provide future services to current residents. Beginning January 1, 1993, the operating reserves required under this subsection shall be in an unencumbered account held in escrow for the benefit of the residents. Such funds may not be encumbered or subject to any liens or charges by the escrow agent or judgments, garnishments, or creditors' claims against the provider or facility. However, if a facility had a lien, mortgage, trust indenture, or similar debt instrument in place prior to January 1, 1993, which encumbered all or any part of the reserves required by this subsection and such funds were used to meet the requirements of this subsection, then such arrangement may be continued, unless a refinancing or acquisition has occurred, and the provider shall be in compliance with this subsection.
(b) Each provider shall maintain in escrow a renewal and replacement reserve in an amount equal to 15 percent of the total accumulated depreciation based on the audited financial statement required to be filed pursuant to s. 651.026, not to exceed 15 percent of the facility's average operating expenses for the past 3 fiscal years based on the audited financial statements for each of such years. For a provider who is an operator of a facility but is not the owner and depreciation is not included as part of the provider's financial statement, the renewal and replacement reserve required by this paragraph shall equal 15 percent of the total operating expenses of the provider, as described in this section. Each provider licensed prior to October 1, 1983, shall be required to fully fund the renewal and replacement reserve by October 1, 2003, by multiplying the difference between the former escrow requirement and the present escrow requirement by the number of years the facility has been in operation after October 1, 1983.
(3) In lieu of fulfilling the escrow requirements provided in subsections (1) and (2), each facility licensed prior to October 1, 1983, shall be required to maintain in escrow the minimum liquid reserve that would have been required under this section as it existed on October 1, 1982, plus 5 percent of the difference between the former escrow requirement and the present escrow requirement multiplied by the number of years the facility has been in operation after October 1, 1983. Beginning October 1, 2003, the escrow requirements provided in subsections (1) and (2) shall apply in full to facilities licensed before October 1, 1983.
(4)(a) In facilities where not all residents are under continuing care contracts, the reserve requirements of subsection (2) shall be computed only with respect to the proportional share of operating expenses that is applicable to residents as defined in s. 651.011. For purposes of this calculation, the proportional share shall be based upon the ratio of residents under continuing care contracts to those residents who do not hold such contracts.
(b) In facilities which have voluntarily and permanently discontinued marketing continuing care contracts, the department may allow a reduced debt service reserve as required in subsection (1) based upon the ratio of residents under continuing care contracts to those residents who do not hold such contracts if the department finds that such reduction is not inconsistent with the security protections intended by this chapter. In making this determination, the department may consider such factors as the financial condition of the facility, the provisions of the outstanding continuing care contracts, the ratio of residents under continuing care agreements to those residents who do not hold a continuing care contract, current occupancy rates, previous sales and marketing efforts, life expectancy of the remaining contract holders, and the written policies of the board of directors of the provider or a similar board.
(5) When principal and interest payments are paid to a trust which is beneficially held by the residents as described in s. 651.023(5), the department may waive all or any portion of the escrow requirements for mortgage principal and interest contained in subsection (1) if the department finds that such waiver is not inconsistent with the security protections intended by this chapter.
(6) The department, upon approval of a plan for fulfilling the requirements of this section and upon demonstration by the facility of an annual increase in liquid reserves, may extend the time for compliance.
(7)(a) A provider may satisfy the minimum liquid reserve requirements of this section by acquiring from a financial institution, as specified in paragraph (b), a clean, unconditional irrevocable letter of credit in an amount equal to the requirements of this section. The letter of credit shall be issued by a financial institution participating in the State of Florida Treasury Certificate of Deposit Program, and the letter of credit shall be subject to the approval of the department prior to issuance and prior to any renewal or modification thereof. At a minimum, the letter of credit shall provide for:
1. Ninety days' prior written notice to both the provider and the department of the financial institution's determination not to renew or extend the term of the letter of credit.
2. Unless otherwise arranged by the provider to the satisfaction of the department, deposit by the financial institution of such letter of credit funds in an account designated by the department no later than 30 days prior to the expiration of the letter of credit.
3. Deposit by the financial institution of such letter of credit funds in an account designated by the department no later than 4 business days following written instructions from the department that, in the sole judgment of the department, funding of the minimum liquid reserve is required.
(b) The terms of such letter of credit shall be approved by the department and the long-term debt of the financial institution providing such letter of credit shall be rated in one of their top three long-term debt rating categories by either Moody's Investors Service, Standard & Poor's Corporation, or a recognized securities rating agency acceptable to the department.
(c) The letter of credit shall name the department as beneficiary.
(d) Notwithstanding any other provision of this section, a provider utilizing a letter of credit pursuant to this subsection shall, at all times, have and maintain in escrow an operating cash reserve equal to 2 months' operating expenses as determined pursuant to s. 651.026.
(e) In the event the issuing financial institution no longer participates in the State of Florida Treasury Certificate of Deposit Program, such financial institution shall deposit as collateral with the State of Florida Treasury eligible securities, as prescribed by s. 625.52 having a market value equal to or greater than 100 percent of the stated amount of the letter of credit.
(8)(a) Each fiscal year, a provider may withdraw up to 33 percent of the total renewal and replacement reserve available. The reserve available is equal to the market value of the invested reserves at the end of the provider's prior fiscal year. The withdrawal is to be used for capital items or major repairs, and before any funds are eligible for withdrawal, the provider must obtain written permission from the department by submitting the following information:
1. The amount of the withdrawal and the intended use of the proceeds.
2. A board resolution and sworn affidavit signed by two officers or general partners of the provider which indicates approval of the withdrawal and use of the funds.
3. Proof that the provider has met all funding requirements for the operating, debt service, and renewal and replacement reserves computed for the previous fiscal year.
4. Anticipated payment schedule for refunding the renewal and replacement reserve fund.
(b) Within 30 days after the withdrawal of funds from the renewal and replacement reserve fund, the provider must begin refunding the reserve account in equal monthly payments which allow for a complete funding of such withdrawal within 36 months. If the payment schedule required under subparagraph (a)4. has changed, the provider must update the department with the new payment schedule. If the provider fails to make a required monthly payment or the payment is late, the provider must notify the department within 5 days after the due date of the payment. No additional withdrawals from the renewal and replacement reserve will be allowed until all scheduled payments are current.
History.--s. 1, ch. 77-323; ss. 7, 25, ch. 81-292; s. 2, ch. 81-318; s. 3, ch. 83-265; ss. 8, 31, 33, 35, ch. 83-328; s. 53, ch. 85-321; s. 4, ch. 86-209; s. 7, ch. 87-136; s. 5, ch. 89-363; s. 7, ch. 91-98; s. 184, ch. 91-108; ss. 5, 12, ch. 93-22; s. 9, ch. 97-229.