U.S. Capitol

Update: President Trump signed the tax bill into law on Friday, Dec. 22.

Senior living provider groups Wednesday expressed a mixture of relief and concern at Congress’ passage of H.R. 1, the Tax Cuts and Jobs Act.

The bill had cleared both houses by mid-day Wednesday, with all voting Republicans for it and all voting Democrats against it. It now heads to the president’s desk.

The bill lowers the top individual tax rate from 39.6% to 37%, reduces the corporate tax rate from 35% to 21% and eliminates the Affordable Care Act’s individual mandate that penalizes people who don’t have health insurance. Experts fear that the mandate repeal will lead to higher insurance premiums for pre-Medicare seniors with chronic medical issues.

Relief came for the provider groups, however, because the bill maintains the medical expense tax deduction used by many senior living residents and preserves the use of tax-exempt private activity bonds to finance acquisitions, new construction and renovations by not-for-profit organizations. The original House of Representatives version of the bill had eliminated the medical expense deduction as well as private activity bonds.

“Our members, as well as the residents and clients they serve, advocated intensely in favor of these tax provisions, and we are pleased that Congress heard us and has left them in place,” LeadingAge President and CEO Katie Smith Sloan said.

Argentum and the American Health Care Association / National Center for Assisted Living also had advocated for the medical expense deduction.

“The ability to deduct medical expenses is critical for residents and families who pay for long-term care out of pocket,” said AHCA/NCAL President and CEO Mark Parkinson, who additionally expressed appreciation that the bill kept the private activity bond provisions. “Private activity bonds are an important source of financing for many of our members and with the growing need for senior health solutions and housing,” he added.

Concerns remain

Concerns about the effects of the bill remain, however. Although the bill preserves private activity bonds and the Low Income Housing Tax Credit, the National Low Income Housing Coalition lamented that it does not expand or reform those programs in service of older adults and others who have the lowest incomes. Moreover, according to the NLIHC, lowered corporate tax rates will lessen the value of the housing credit, reducing by more than 200,000 the number of affordable homes produced and preserved for seniors and others over the next 10 years.

“At a time when we should be increasing investments in solutions to the housing crisis impacting low-income people across the country, the increased deficits created by these tax cuts put the national Housing Trust Fund and other vital housing and community development programs at risk of deep spending cuts down the line,” NLIHC President and CEO Diane Yentel said.

The tax bill will add more than $1 trillion to the federal deficit due to tax cuts to corporations and high-income individuals. Lawmakers have said they will be scrutinizing Medicare, Medicaid and other programs next year due to decreased available funding.

“As Congress turns to budget and spending bills for the coming years, we are committed to redoubling our efforts to ensure that our members have the necessary resources to provide services to those who need them,” Sloan said, calling the tax bill “ill-conceived.”

A more immediate concern is that, without a waiver of the Pay-As-You-Go Act of 2010 from Congress, billions in cuts to mandatory federal programs, including a $25 billion cut to Medicare, could be triggered if President Trump signs the bill. The timing of the cuts would be based on when the bill was signed into law.

And the bill eliminates the ability of nonprofit organizations and others to undertake a one-time advance refunding of a bond, lowering their overall borrowing costs. LeadingAge previously had said that advance refundings are a “significant way that life plan communities take advantage of lower rates.” Their elimination, the group said, ultimately will mean higher costs for older adults.

Lisa McCracken, senior vice president of senior living research and development at specialty investment bank Ziegler, told McKnight’s Senior Living that the change may affect not-for-profit provider decisions to start new projects or campuses in the short term.

“Generally, what has allowed not-for-profit providers to venture into those types of projects is knowing, ‘OK, this many years down the road, once we fill up, we stabilize, we prove that this is successful and we’re good, we can refinance that debt and bring the cost of capital down,” she said. “If their hands are tied with that, that’s going to cause people to sit back and say, ‘OK, how does this impact our growth plan?’ ”

Longer term, McCracken said, initial financing deals may be structured differently to account for the change.

But the tax bill contains more not-so-good news for operators, she said.

“With the corporate tax rate going down, those with bank debt will likely be seeing some higher costs of capital as the rates fluctuate,” McCracken said.