Eligibility for funding
Recovery of Aged Care Capital Funding - The Guidelines
Recovery of Aged Care Capital Funding - Capital Grants Advice 1/2007 - The Guidelines
Background
- The Commonwealth has provided capital funding to assist organisations in the capital development of residential aged care facilities through the Aged or Disabled Persons Care Act 1954, the National Health Act 1953 and now, the Aged Care Act 1997.
- Grants have been made in accord with an agreement between the Department and the recipient that requires the recipient to apply the grant to particular purposes and to meet a range of other conditions. These agreements usually state the conditions under which the Commonwealth can seek the repayment of grant, for example, if the facility is sold without prior Departmental approval. Agreements made Aged or Disabled Persons Care Act 1954 or the National Health Act 1953 in general do not state the period of the agreement, while agreements under the Aged Care Act 1997 have not been explicit about the basis on which any amount to be repaid will be calculated.
- These matters were identified in the Australian Law Reform Commission's Report The coming of age: new aged care legislation for the Commonwealth (Report No. 72, 1995). They continue to be relevant to Residential Care Grants under the Aged Care Act 1997 and to capital grants made for Industry Restructuring.
- It is important for residential care providers to have clear information on the amount of funding the Commonwealth would seek to recover should the grant recipient decide to divest itself of the facility for which the grant was made, whether by way of sale or uncompensated transfer. Providers quite often ask the Department whether the conditions attached to disposal of a facility under previous capital grant agreements still apply. Some of these agreements are over 20 years old. Several cases involving more recent agreements have also highlighted the need for clear guidelines on the rationale for recovering money, the principles to be applied in determining whether to seek repayment of a capital grant and the basis for the calculation of any amount to be recovered.
Issues
Rationale and principles for recovery of funding
- Commonwealth (taxpayers') money was allocated to residential aged care service providers in order to meet the objective of encouraging the construction/renovation of buildings appropriate to the provision of aged care. The funding was not provided as a business development grant or as a general purpose grant to charitable/religious organisations. The Commonwealth continues to have an interest in ensuring that the funds continue to be applied to the original purpose, at the relevant service, for a considerable time beyond the original payment of the grant. (The period for which the Commonwealth might reasonably continue to have such an interest is discussed later in this paper.) If the purpose of the grant is no longer being effectively met, then the Commonwealth's funds need to be recovered to general revenues for application to the Government's current policy priorities.
- The principle initially applied is:
That Commonwealth money paid as a capital grant should be recovered when the original recipient divests itself of its interest in providing residential aged care in the facility for which the grant was made.
- However, there may be circumstances in which such a requirement may be inconsistent with other objectives (eg. to meet certification requirements when rebuilding is the only practicable alternative). There may also be circumstances where to recover would be unduly harsh (eg. where a provider is transferring its residential aged care assets to another provider with no gain to itself). One option that is appropriate in certain circumstances involving a change of ownership is to novate (transfer) the grant agreement to a new provider by a deed of novation.
- Each case should be assessed on its merits but the presumption should be that the Commonwealth should recover its interest unless a strong argument to the contrary can be made in writing to the appropriate delegate. Any analysis should have reference to the purpose of allocating Commonwealth resources to aged care and recognise that a decision not to recover money is just as much a decision about the allocation of Commonwealth resources as is a decision to recover.
- In considering the merits of any case, the following questions should be addressed:
- Is the facility being sold on the commercial market?
If the answer is yes the Commonwealth should seek full recovery of the grant.
- Is the facility being transferred in a way that results in financial/asset gain to the grant recipient?
If the answer is yes the Commonwealth should seek full recovery of the grant.
- Is there any convincing argument that to seek to recover the grant would frustrate the achievement of an identified Commonwealth aged care policy objective (for example, an argument that recovery of the grant would jeopardise the ongoing viability of the grantee's aged care services)?
If the answer is yes the policy objective should be identified and why the recovery of the grant would be a problem should be articulated. The recovery of part of the grant should then be considered.
- If an existing provider proposes to rebuild a service on the same site and to continue to operate that service, has the provider demonstrated a need to rebuild because it would be uneconomic or not practical to upgrade the existing facility to meet certification requirements, especially where such requirements could not have been foreseen at the time of the most recent Commonwealth capital grant?
If the answer is yes, the Commonwealth may choose not to recover previous grants, taking into account all other circumstances of the case.
- Is the financial situation of the recipient such that there is little likelihood that an attempt to recover funds would be successful?
If the answer is yes the argument should be fully documented with supporting evidence. The legal position of the recipient may also need to be considered.
- Is the facility being sold on the commercial market?
- These principles should apply to grant agreements made under the Aged or Disabled Persons Care Act 1954, the National Health Act 1953 and the Aged Care Act 1997. The same principles should be applied to the consideration of upgrading grants funded outside the Aged or Disabled Persons Care Act 1954 and to capital grants made the Aged or Disabled Persons Care Act 1954 for the construction of self-contained units and day therapy centres (mostly in the 1980s).
Funds to be recovered
- Funds to be recovered can be divided into two components. The first component derives from the time period for which the Commonwealth maintains an interest in ensuring that residential aged care is provided at the service.
- Twenty years is proposed as the maximum period over which the Commonwealth would retain its interest. This maximum period should apply to major contributions to new or substantially upgraded buildings, with a shorter period for grants for smaller projects.
- The Commonwealth's interest could be regarded as reducing after some period of time or as being spread evenly over the term of the grant agreement. For larger grants, some reduction of the total amount recoverable after a certain time is proposed, to discourage early divestment by grantees.
- The second component concerns the effect of changes in the value of the grant derived from changes in the value of the property on which the grant was expended. In many cases, the original value of the property is not known. It would therefore be appropriate for any general policy to provide for the recovery of the actual amount of the grant (capital works and any land costs).
- In all grant agreements, the Secretary of the Department determines whether the whole or the part of the grant should be repaid. This provision allows flexibility to set an amount lower than the full amount of the grant, in accordance with the principles set out in paragraph 9 above.
- The Aged Care Act 1997 (section 43-6) provides for capital repayment deductions for services granted Extra Service Status in respect of which capital grants have previously been made. The formula for repayments is set out in section 21.5 of the Residential Care Subsidy Principles. This formula does not conflict with the approach to recovery of capital funding set out below.
Summary
- The following approach will be taken to the recovery of Commonwealth capital grants to residential aged care services when the grant recipient seeks to divest itself of its interest in providing residential aged care in the building on which the grant was spent:
- Each case will be considered on its merits and any decision on whether to seek to recover a grant will be explicitly considered in terms of the issues set out in paragraph 9 above.
- The basis for recovery will be the actual historical amount of grant, rather than a proportion of the current value of the facility, unless the Secretary determines otherwise, taking into account any case made by the grantee.
- For capital grants of up to $100,000, unless otherwise stated in the grant agreement:
- The period in which the Commonwealth will retain an interest will be 2 years; and
- The full amount of grant will be recovered.
- For capital grants of $100,001 to $500,000, unless otherwise stated in the grant agreement:
- The period in which the Commonwealth will retain an interest will be 2 years plus an additional 1 year for every $50K of grant or part thereof greater than $100K;
- The full amount of grant will be recovered if disposal takes places at any time prior to the expiration of half the period of the Commonwealth interest. After this time, the amount to be recovered will reduce in equal proportions for each completed year to be $0 at the end of the period of Commonwealth interest. For example, for a grant of $500,000 with an expected life of 10 years, the full amount would be recovered for the first 5 years, after which the amount to be recovered would reduce by 20% for each completed year for each year beyond 5 years.
- For capital grants of $500,001 or more, unless otherwise stated in the grant agreement:
- The period in which the Commonwealth will retain an interest will be 10 years plus an additional 1 year for every $100,000 of grant or part thereof greater than $500,000; and
- The full amount of grant will be recovered if disposal takes places at any time prior to the expiration of half the period of the Commonwealth interest. After this time, the amount to be recovered will reduce in equal proportions for each completed year to be $0 at the end of the period of Commonwealth interest. For example, for a grant of $2m with an expected life of 20 years, the full amount would be recovered for the first 10 years, after which the amount to be recovered would reduce by 10% for each completed year for each year beyond 10 years.
- Each case will be considered on its merits and any decision on whether to seek to recover a grant will be explicitly considered in terms of the issues set out in paragraph 9 above.
It should be noted that where a service receives Extra Service Status, capital grants are required to be repaid in accordance with Section 43-6 of the Aged Care Act 1997 and Section 21-5 of the Residential Care Subsidy Principles 1997.
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