I was talking to a relatively new executive director. She’d been in the job about six months. She asked me a question then, before I could answer, another person leaned into her ZOOM frame and answered it for her. I introduced myself. She was the board chair. I asked what was going on that she was in the office that day. Oh, she was just helping out.
Ms. Board Member, this is not “helping”. You were (I learned more later) in the office to interact with staff directly, by-passing the Executive Director. You were telling the staff and the ED what you thought they should do — even though you were only one board member and not speaking for the board as a whole. And that was out of line.
Sound blunt? Sorry, but it is blunt. Because there are times when only blunt will clearly communicate.
The board of directors of a center is meant to be a governance board not an operational board. The executive director operates the center day to day. The board is responsible for larger issues like setting the mission, planning strategically and assuring the center has the resources it needs. Here are some dos and don’ts for boards:
DO develop policies around the board roles including committees and officers, emphasizing the big-picture role.
DON’T put operational items on the board agenda unless you specify they are for information only (and not decision-making).
DO discuss as a board the difference between operations and governance.
DO have someone (not the chair) responsible for holding up a “STOP” sign when the group strays into operations in the meeting. Maybe give a STOP card to everyone!
DON’T visit the center randomly. If a board member goes into the center, always talk with the executive director in advance about your purpose. You can be a consumer — that is okay — but you can’t tell staff what they should do.
DO remember that a single board member is NOT the full board and does not make decisions or judgments on behalf of the board.
DON’T expect special treatment. That would violate your Conflict of Interest Policies and Procedures.
For a little more about moving your board from interfering with operations to focusing on policy, strategy, and oversight, check out this article.
Provide your board with resources to assist them in fulfilling their true role. Here are some:
The first rule is that you cannot ever endorse a candidate. (This has to do with IRS rules around non-profit status, if you have that, and rules against state entities endorsing candidates if you are not a non-profit.) Since all CILs are non-profits, your CIL cannot endorse any candidate. No signs in your window, local or national. No speaking on a candidate’s behalf at any event.
The second rule is that you cannot use federal money to
lobby. This means several things.
Any action you take to attempt to influence related to money you are receiving or wish to receive is considered lobbying.
Any action you take to support or oppose a specific piece of legislation is considered lobbying.
The SILC or CIL can lobby if there are no federal funds spent in supporting the effort either in direct costs, salaries (staff time), or indirect costs.
The SILC council members and CIL board members, as long as they don’t imply that they are speaking for the council/board and as long as the council/board doesn’t assist with any costs, can speak to any matter as members of the public unless the state prohibits this in its executive orders or other documents related to council operations.
Testimony around the effectiveness of centers for independent living or other issues of concern to the disability community can be provided by SILC or CIL staff or council/board members at SILC/CIL cost (including federal funds) as long as it doesn’t end with a request for continuing or increasing funds or opposing or supporting legislation.
Reports of statewide effectiveness of IL can be provided by SILC staff or council members at SILC cost, or CIL staff at CIL cost, as long as there is not a request for continuing or increasing funds or opposing or supporting legislation.
You can respond to questions asked in a hearing or other forum, as long as you don’t lobby – that is ask for a specific vote for or against a bill or budget item.
the origins and the purpose of Independent Living, as told by Ed Roberts and as reprinted from the Mouth, one of two disability magazines from the early days of the IL movement.
John Hessler was the second student to come into Berkeley. Whenever we needed somebody to stare people down, it was John. He was six foot eight inches, he had a huge wheelchair.
He went to France to study French. We got the county welfare to finance that. Then he decided he didn’t really want to teach French. He came back and put the proposal together for the disabled student program. That document became the model on how to set up an IL program.
John was the one who thought through a lot of the basic issues of what would be IL. We knew from the services that helped us live that you had to have a personal assistance program, and a way to find [attendants]. You had to have money to do that, so you had to guarantee people would get enough help in the community, transportation, all that. There were a lot of issues that we began to put together, and that’s when we saw how powerful a peer could be in the life of someone with a disability.
Our disabled student program at Berkeley was so successful. We taught people how to use the welfare system to survive and go to university. We got to know the welfare regulations better than the people who worked in those agencies. We knew all the loopholes.
We got a van. John Hessler by then was the director of the Disabled Students Program; he was a quad and he could drive it. We kept pushing the Department of Rehab to buy those kinds of things for people.
We made sure that our people got the maximum amount of attendant care. When we found it very difficult, we went to the state and got the regulations for it. We began to be perceived as political animals. That changes the perception of you to powerful.
As you begin to get more and more empowered, you see yourself as powerful too. We realized that the only way to change things was politics.
Always, other people had spoken for us. We were speaking for ourselves. We had lots of comments from legislators on how important it was to hear it directly from us. We had a lot of credibility.
We began to get involved in local elections, volunteering time to help politicians. We recruited friends and attendants to do that work, too. It gets you known in politics to do all that.
Our Disabled Student Center, we were the only people doing attendant services. This was during the Viet Nam war. There were a lot of Conscientious Objectors then, wonderful people. I talked with the [county’s] head of selective services [the draft board] and suggested he turn those C.O.’s over to us.
We explained it so he could get it: that it would be punishment for them, having to scoop up our shit. We’d teach them responsibility, see? He gave us hundreds of C.O.’s for attendants. They were great attendants who were loyal, who stuck with us.
That was the only bad thing about ending the Viet Nam war. We lost our C.O. attendant pool.
The University finally said we had to stop serving non-students. So we moved out into the community with independent living services. It started in one room in 1972, then in a two-bedroom apartment. It struggled a lot just to get going.
I took over as director. We began to raise some money. We knew we had something important and it worked. We were very clear that if we were going to be politically powerful, we had to involve all people with disabilities, break down the barriers the charities had created between us.
An IL had to be an IL for all groups and all ages, not just for people with physical disabilities. This was clearly a political decision. We weren’t going to get anywhere nationally or internationally unless we were together. The CIL immediately took off.
All of us who started the first Center for Independent Living were on welfare.
We made a conscious decision not to go off it.
We built that center on welfare. None of us could take a salary of more than $300 and still get the welfare, so that’s how we did it. I didn’t go off welfare until I became California Rehab Director in 1975. In 1976, we started twenty more CILs.
When an IL gets involved with a person with a significant disability, acute care costs go way down. It’s links, some links to life. People who are going, who are motivated, don’t get sick as much.
Even today there are 83,000 people with cerebral palsy locked up in nursing homes.* They’re only in prison because of their disability. If you’re going to get out of there, you’ve gotta fight.
One hundred thousand people die every year from de cubiti ulcers – bedsores*. Most of them live in nursing homes. I thought by now, Independent Living would have put an end to that.
We can do that right now, get older folks, get everybody out of nursing homes.
What would I would do differently if we were starting IL today? First, I would do a lot more training, getting people in touch with the history and philosophy. Today we are not grounded in our own ideology.
Second, I would build more leadership as we go along. Give people the same basic activist training that we got in Berkeley [in the anti-war movement, the women’s movement, the free speech movement, the civil rights movement] in the Sixties.
All too often, people make IL their career. Originally, it was this: We go in, learn to do jobs, move on in another few years and let other people get those jobs – while we move on and take over government agencies, take over those old-time charities, and take the IL philosophy to them.
Third, the leadership would be around political advocacy, around political change rather than around one advocate working to get services for one person.
We discovered that over and over. All things change when you get political power.
Politics changes lives.
CILs should be the leaders in a national campaign against sheltered workshops. We should be doing that now.
A person with a disability should be running the center. Yes, we should include parents and friends. I’d like to see much more teamwork at CILS – under disability leadership.
We should be helping parents get kids into regular schools. We should be making a commitment to a generation of young people with disabilities, that they know their history.
CILs don’t do enough teaching of our history, our ideology. Too many teach us to suppress our anger, not to use it! If anything, we’re too passive. Anger is wonderful if you get energy out of it and learn. It’s terrible when you take it out on yourself or the people you love. Yes, I’m still angry. Lots of professionals make me angry. They’re too much in control of our lives. People with disabilities are aging. I see them putting their own parents into nursing homes – parents who took care of them all their lives! This has to stop. We have not aligned ourselves with the elderly strongly enough. They are written off, written off.
We are still a long way from working equally with people with mental disabilities. We need attendant programs for people with emotional and cognitive disabilities. It could work great. Nobody’s doing it.
We were strong integrationists and inclusionists [in early IL].
When you look at many ILs, you see white middle class. I’m glad there are a lot of women in it – that grew out of the women’s movement.
CILs don’t do enough recruiting from Asian, African, Hispanic communities. There are starting to be a few CILs on Native American reservations, that’s good.
We would never do a government agency’s job. We didn’t want to set up a segregated transportation system. Getting people places is the transportation system’s job! Our job is to hold them accountable.
I watch CILs who are doing transport or building houses or delivering services – instead of holding agencies accountable, we take over their services.
If we are co-opted by the system, we are in trouble. More important than being service deliverers is being advocates. We’re too heavy into social services. Yes, it’s easier to get money that way, but it’s harder to get advocacy. We’re losing the ideology of independence.
Voc Rehab has totally failed. Either they shape up or we shape them up or we get rid of them. CILs get their money from Voc Rehab and Voc Rehab is killing IL. They’re killing it. [See pp 48-49 – editor]
CILs should be separated, away from Voc Rehab.
The IL movement is at a crossroads. It’s growing internationally, but not very much here at home. A lot of centers are not in touch with their philosophy or their meaning. IL looks a lot like UCP and MDA.
Because Gov. Reagan threatened us so much, he helped us come into our own as a group. Many of the people I worked with over the years, fighting the Reagan cuts, were close to [Jerry] Brown, and together we decided to get me appointed. So for months, everywhere Brown and Mario Obledo went, they kept hearing about me. Soon they started asking, ‘Who is this guy?’ And when they came to CIL, they found out. They’d never seen disabled people working like that.
[When Brown appointed Roberts head of California VR] I made no bones about the fact that my loyalties were not to them, but to the disabled. And I told them that I would probably get them into a lot of trouble, that it would mean shaking up the old ways.
I did get Brown in some trouble. But, to his credit, while he did ask a lot of questions about what I was doing, he let me do what I had to do.
We got a lot of disabled people to work. We helped write national laws about disability. We helped write state laws about building accessibility, transportation, and architectural barrier removal. California is the farthest along of any state in the nation because we were active. It’s the only state that has legislation mandating accessible buses.
Through all these experiences I learned that if I was to be free, if I was going to be independent, if I was going to lead my own life, then I had to fight for it.
We got a lot of disabled people to work. We helped write national laws about disability. We helped write state laws about building accessibility, transportation, and architectural barrier removal. California is the farthest along of any state in the nation because we were active. It’s the only state that has legislation mandating accessible buses.
The disability community has been raising red flags regarding institutions for decades. We must continue to elevate the voices of disabled people to ensure they have community-based services in the community. We wish our community would have been heard and taken seriously as there are more reports coming out about the harmful practices of any institution. Just this month in June, a report was issued about Psychiatric Residential Treatment Facilities (RTFs), Warehouses of Neglect: How Taxpayers Are Funding Systemic Abuse in Youth Residential Facilities? Everyone in IL must see this! Especially given that one of our very important core services in independent living is institution transition and preventing people with disabilities from entering institutions. More information is listed on the U.S. States Senate Committee on Finance’s page.
The report is about a two-year investigation of four major for-profit companies that reveal RTFs receive billions of dollars in federal funding – including Medicaid and child welfare dollars – and provide substandard care, and subject kids to abuse and neglect. The report calls for Congress, industry, federal government agencies, and states to raise standards for congregate care, strengthen oversight, and invest more in community-based alternatives. The NBC News report summarizing some of these findings is found here: https://www.nbcnews.com/news/us-news/residential-treatment-centers-senate-report-rcna155177
The report said there were “numerous” accounts of residential treatment staff members’ “dragging or throwing” children in their care, and pushing them into fences, walls and furniture,” based on the companies’ records.
“Residential treatment is relied on because it’s an alluring model if you don’t know what’s going on in there,” Reagan Stanford, an attorney with Disability Rights Arkansas, said during the hearing. “The facilities sell themselves as specialized providers with all the services a child will need and places for children with nowhere else to go, she said, “but the reality is not that.”
Dozens of youth rights advocates and people who’d been placed in residential facilities as teens attended the hearing. Sen. Mike Crapo, R-Idaho, the ranking member of the committee, addressed them in his opening remarks.
“To the victims in the audience and around the country who’ve suffered abuse and neglect in residential treatment, your experience is entirely unacceptable,” Crapo said. “Facilities entrusted with caring for our most vulnerable youth must be held to the highest standards and subject to routine oversight.”
In one incident the Senate report described, which was also detailed in a state investigation report obtained by NBC News, a female staff member at a Universal Health facility in Oklahoma admitted to molesting a girl in 2021 and said she planned to have “a more intimate relationship” when the child left and turned 18. The facility moved the staff member to another unit after patients reported the misconduct, but she continued to stand outside her victim’s window each night, according to the report. Universal Health told the committee the staff member was later terminated.
Youth rights advocates gathered at the Capitol to share their stories and push for reform.Mariam Zuhaib / AP
At an Acadia facility in Arkansas, according to the report, company records showed staff members simultaneously placed children in a seclusion room and chemically restrained them — which is prohibited by federal regulations — 110 times in 30 days. Acadia executives told the Senate committee that the facility employees had not been following company policy or government rules.
This issue is a significant concern for Independent Living. Unfortunately, it is not a new issue. This is why it’s essential to continue advocating to be heard, and why Independent Living, as one of the very few disability-led movements, is so important. For a long time, large for-profit companies have been running congregate living for people with disabilities. Prior to that, state-run institutions were responsible for the long history of institutionalization. Transferring the same practices, including physical restraint, isolation, heavy sedation, and more, from the public to the private sector has not resulted in any improvement.
With youth, much of this comes from parents who don’t know what to do regarding their children’s mental health. Parents fear for their safety or the safety of others in their community. They fear their children may hurt themselves. As the children grow the concern increases. Parents and youth often don’t receive all the alternative and unrestrictive options available, or there are significant barriers to accessing solutions. These youth need support to meet their mental health needs so they have a chance to transition successfully to adult life. And that support needs to happen at home and in the community, not in institutional settings.
Did you know there are home and community-based services for children under 21-years of age (including children on long waiver waiting lists)? All states must comply with Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) benefit requirements to provide all medically necessary care to children in Medicaid, including community-based alternatives to RTFs, and are encouraged to take federal resources to build additional support for community-based services whenever possible (e.g., intensive care coordination to divert youth from these facilities and family-based services and supports).
When these children’s symptoms go untreated, their conditions worsen over time, leading to numerous adverse outcomes. These outcomes include recurring mental health crises, emergency room visits, involvement in child welfare and juvenile justice systems, as well as unnecessary institutionalization. As a result, states are also violating children’s rights under the Americans with Disabilities Act and Section 504 of the Rehabilitation Act.
Home and Community-Based Services (HCBS) should be available in state plans and provisions. However, states often don’t address these concerns as deeply as needed. HCBS programs are defined and funded through these written state plans, regularly reviewed, and updated. How has your CIL been involved in providing feedback? If this is something you are not involved in, you should reach out to your state’s Medicaid agency to begin making relationships and getting a seat at the table. Otherwise, these plans may be created about us, without us. Consider how HCBS funds CAN be used. It never has to be congregate living. What is your CIL or SILC doing to advocate for HCBS, including EPSDT?
Republished with permission from Kimberly Tissot of Able South Carolina.
Note: This is from a couple of years ago but the event still has value as a teaching moment.
I’ve had a hell of a week and I need kindness. I found IL to be my home 10 years ago and I’m incredibly proud of the work of Able SC and especially our team. While we are no strangers to non-disabled folks getting upset with us, I have never felt more betrayed by my own community than I have this week.
After
learning that members from our own community talked about organizing a protest
on our CIL because of our presence on a national person-centered planning
committee, I think we all need to wake up to reflect and remember we are in
this fight together and we must communicate with each other better. Our
organization, as well as three other IL orgs, are serving on a committee
because we wanted to ensure disability representation with an organization that
typically overlooks us. This shouldn’t be a problem, but for some reason, it
was to this group. I think all three IL members are all pushing for more
representation as well, something that could have been learned if this group
simply reached out to us. In short, let’s communicate more and learn and grow
together. If we don’t understand something, we need to research and learn. We
are in this fight together and we need to look out for each other. Especially
in these times.
In
closing, my assistant director sent the below email to our staff to provide a
reflection of the situation. It has been a learning experience for all 53 of us
at Able SC and I wanted to share with you all.
Able SC Staff, I wanted to email you all about some recent events. Everything is under control now, but I thought it was a good teaching moment about different advocacy approaches. Warning: it’s a long email.
A couple of months ago, ACL sent out a call for nominations to serve on a national person-centered planning (PCP) policy and practice committee. PCP is a required practice for all Medicaid Home and Community Based Services, and in most cases is not implemented properly. PCP is consumer-centered, but not always consumer-driven. It’s a step closer to IL, but not quite there, even when implemented correctly. However, since our mantra and the mantra of the disability community is “nothing about us without us,” Dori put her name in the hat and was chosen to serve on this committee to influence policy. Dori has been trained on PCP, has done trainings for others on PCP and pushes a more consumer driven model, and has served on our own state’s PCP committee with some other members of our staff so she was well qualified in addition to her personal experience.
Now comes the controversy. First, the Autistic Self Advocacy Network submitted public comments on the lack of representation of individuals with disabilities on the panel. Many folks from the IL community jumped on in agreement (including us), until several members of the committee chimed in and stated they did have I/DD, including our very own Dori. And these weren’t just token members as we sometimes see; they were high ranking members within their prospective organizations. So then the community turned to wanting to boycott and protest the committee because of the topic itself. Next, someone who used to be a partner with us here in SC who is on lots of listservs chimed in and said, “Let’s start with Able SC….the self-described CIL in Columbia which employs Dori Tempio and has allowed her to be on this panel…” And then without even reaching out to us, several of our sister CILs in other states jumped right on board with the outrage. Luckily, Kimberly has established some great relationships and several people reached out to let us in on what was happening and also pushed back on some of the criticism. Kimberly also had direct conversations with some of the naysayers to explain our position. It seems to have died down for now.
Some reflection from this drama:
Advocacy needs to be well-informed and well-researched. No one bothered to contact Dori to find out why she, as a person with a disability, felt compelled to serve on the committee.
Strategy matters. PCP exists, it’s progress from where we were, and it doesn’t look like it’s going anywhere any time soon. We have taken the approach of being right up in the middle of discussion so we can insert the IL philosophy into it every chance we have. Some organizations would rather use their energies to protest. I know protesting can be an effective form of advocacy; disability rights history has some great examples of this. But protesting is typically a last resort when discussions have broken down, progress has stalled, and leadership is shutting the oppressed population out of the process. Those circumstances don’t apply here, at least not at this time. Are there people on the committee who believe in the medical model and think people with disabilities can’t be independent? You bet. But guess who will be there to put them in their place when they speak nonsense? That’s right—Dori Tempio!
Don’t alienate your allies. Why would our IL partners want to focus on fighting with us instead of trying to reach out to us to find common ground and pool our collective power? There are so many battles left for the disability community to fight; why go to war with each other?
In summary, I thought this real-life scenario was an excellent example of different advocacy approaches and gets to the heart of who we try to be as an organization. We make non-traditional allies, we are at the table with decision makers, we are educating, and we ARE advocating..in a way that has worked for us time and time again. Thanks to each of you, as I know you are all working on a regular basis with folks who disagree with you, and you are moving the needle slowly but surely in a way that gathers the confidence and respect of others and brings on partners instead of alienating them. You all rock!
Do you have fears or qualms about anything happening in and around your center? Take a few minutes to make some notes — what do you worry about? If you aren’t a worrier, what things have you seen go wrong with other non-profits in your circle of peers in your state, or in other organizations in your city or county? I have a list of things that worry me. Let me share a summary of them, then talk about them today and in future posts.
Financial risks. More often than we should, we learn about a center where money has been stolen from the organization. So what can you do to mitigate that risk?
Risks of staff not doing their job. You have specific requirements from your funding sources. These should be written into job descriptions and individual performance should be evaluated.
Weather or other disasters. Disaster policies, drills and state-wide collaboration are important.
Security of both electronic and paper records. Confidentiality is key. Not everyone should have access to every file.
Risk of a law suit from a staff member or consumer. Do you have policies and procedures? Do you follow them? Do you have insurance to cover when problems still exist?
Let’s look at the first of these. What kinds of things can you do to mitigate the risk of theft of funds from your organization?
Do you have job descriptions and policies and procedures that require good internal controls? How do you to make sure these controls are consistently applied? We saw something interesting related to the Pandemic. As staff moved to remote work, some of the internal controls were dropped. I am sure the intent was that these would be set aside temporarily — but in some situations the CIL failed to put them back into place or replace them with other safeguards. Be sure you look closely to ensure internal controls are in place.
Is your board involved in mitigating financial risks? Consider how they review financial statements — do you make key notes so they are aware of your greatest concerns? Is someone on your board expert in this area? How is the board involved in the separation of duties? If you have a small staff, a board member might assist with justifying bank statement against the financial statements for example.
We also suggest that you mitigate the risks by purchasing insurance and bonding key staff. Liability or other insurance may be helpful. Bonding should always include the bookkeeper or accountant. You may also want the Executive Director to be bonded.
As the state networks wind down their work in developing a SPIL, I am weary and discouraged at how many of the networks are fighting with each other.
It isn’t so bad when CILs and the SILC are collaborating and trying to bring the DSE along. The DSE is part of the network, but not necessarily part of our community, so I understand when there is disagreement there. After all, they do not necessarily agree with or even comprehend IL philosophy. They sometimes impose things they shouldn’t and we are forced to advocate with them to take back our power. It is a constant effort to educate them and show them what consumer control looks like at every level. More about the role of the DSE in IL in another post.
But among CILs and with the SILC, we should all be part of the same team. There is a big, wide, ableist world out there and most of us are weary with THAT fight. How on earth do we have the energy to fight each other? But somehow we do. I know of a state where two CIL directors are at odds and will not attend the same meeting — not even on ZOOM. States where the SILC and CILs are wrestling for power instead of working together. States where the CILs are split on approval of the SPIL and there is barely a majority to sign for approval. I hear harsh judgment from one person in the network about another, and I am beyond sad.
Let me suggest that there is not a single way of looking at the circumstances around us. My viewpoint may or may not agree with yours on more than one thing. We all come from different backgrounds, different decades, different parts of the country, different life experiences. We will not agree on everything.
But there should be one very important thing we do agree on, and that is to listen to and respect each other, no matter what. Don’t give me a line about a person having to deserve that respect. Stop. None of us is perfect, and we need to allow imperfection in our community. If we don’t, if we judge harshly, we get in this mess of fighting each other all the time. Let’s agree that every human being is deserving of respect, no matter how angry we are at their behavior. If you judge that someone is out of line, behaving in an ableist manner, doesn’t get IL philosophy, has acted in their own interest rather than in the interest of IL — so be it, but it doesn’t give you the right to dismiss them as the enemy and drive yet another wedge in what could be a very powerful alliance. It is so easy to criticize them, especially to our friends when the person isn’t around. Let’s stop!
Instead let’s get close to them. Remember that many of us are wounded by the ableist world, have been disrespected, taunted, ignored, dismissed, abused. Take the time to listen to those we disagree with first, then draw them into our community by helping them understand what that powerful, consumer-controlled community is. As peers, let’s support one another and find our way to a stronger and more and more powerful team.
There is a place for calling out the things that weaken IL, but that place is face-to-face, one-to-one and not in complaining to each other about “them”. If we listen, if we learn from each other. If we pool our experience and our expertise, we can be more powerful. We wonder why our movement is weak? This is at least one element that weakens us. And we are in control of how we respond to each other and make our movement stronger.
Hello, and welcome to the training and technical assistance options for you as a new Executive Director of a Center for Independent Living. I hope you will be interested in the monthly Executive Director Call. They take place on the second Monday of the month (unless it is a holiday) and you can subscribe by going to https://www.ilru.org/home and signing up for the email list.
I also offer a regular one-to-one call to new EDs – weekly or less often if weekly is too much – so that you can ask whatever questions have come up that were not urgent but you’d like to discuss. Let’s talk and see if that is useful for you. Email me at paulamcelwee.ilru@gmail.com and we can set a time.
It has been well publicized that accounting for leases is changing dramatically, but most of us are just getting our first hands-on experience with this change. The new rules are being implemented for calendar year 2022 and fiscal years ending in 2023.
This may raise a question about whether federal cost reimbursement will change.
An important first task is to determine whether you have operating leases or financing leases. In prior years we used the terms operating lease and capital lease. The new financing leases have similar characteristics to capital leases and, sometimes, the terms are used interchangeably.
Any lease that it is not a financing lease is an operating lease. A financing lease will have at least one of these characteristics:
* ownership transfers to the lessee at the end of the lease,
* the leased property can be purchased at the end of the lease and purchase is reasonably certain,
* the length of the lease is for a major part of the useful life of the property,
* the present value of the lease payments equals or exceeds substantially all of the value of the property, or
* the asset is specialized and there is no practical alternative value for the leased property
If none of these characteristics exist, you have an operating lease and you will continue to record rent expense, so there shouldn’t be any adverse impact on your federal reimbursements.
None of these characteristics would typically exist for a facility lease (although that is possible).
If you do have a financing lease, you will be recording interest expense and also amortizing the asset (your right to the leased property). The amortization is uniform over the term of the lease, but the interest works like a loan, with more interest upfront, so expenses would be somewhat more initially than an operating lease, but not more than a prior capital lease under the old rules. Your federal reimbursements should not differ from a capital lease to a financing lease, but if an old operating lease is now characterized as a financing lease, your expenses and your reimbursements could increase slightly. Uniform Guidance and HHS Uniform Administrative Requirements both use generally accepted accounting principles (GAAP) as a starting point, so unless some modification is enacted, reimbursement for the accelerated expenditures should be permitted.
The big difference occurs on your balance sheet. All leases with a term of more than one year are capitalized (treated as assets) on your balance sheet. This is done by calculating the present value of the future lease payments including options that are likely to be exercised. Once that calculation is done you will record an asset that you might call “leased property”, or some other descriptive account, and a liability that you might call “lease liability”.
This raises several questions, including:
* what about donated space? These rules don’t apply to donated space,
* what about a below market lease rate? This could be a partial lease and a partial contribution, or just a good deal,
* do these transactions get recorded retroactively or prospectively? An accounting option, which is probably the easiest way to implement the new reporting rules would be to record the asset and liability at the beginning of the current year in your financial statements or at the beginning of the lease if that is later,
* what discount rate should be used to calculate the fair value? The rules say that if there is a rate implicit in the lease, we should use that, but that is rare so we can use a “risk-free rate of return” at the time the lease is recorded. For leases that have been in place but are recorded initially in your calendar year 2022 financial statements, you could use the federal bond rates. Federal bond rates at the beginning of 2022 were 1.34 % For 2 year bonds, 1.62% for 5 year bonds, and 1.83 For 10 year bonds,
* should leases be broken out between short-term and long-term? Yes they should, and assets and liabilities related to operating leases and financing leases should be reported separately, and
* Is there any other impact other than the extra work? Adding these assets and liabilities to your balance sheet could impact your compliance with loan covenants. Most bankers are well aware of this change, so if you believe your compliance with covenants will be affected, you should have a conversation with your banker.
