Section 635-6.3. Leases for real property.

(a) This subdivision applies to allowability of costs for leases for real property except for continuing residential lease arrangements as specified in subdivision (b) of this section.

(1) In order for lease costs to be considered for allowability, the provider or [consumer] individual lessee must submit the lease to [OMRDD] OPWDD for approval. In deciding whether to approve a lease, [OMRDD] OPWDD shall consider whether the lease is in the best interests of the programs and the persons it serves and whether the lease in any way violates public policy. In deciding whether to approve an amount for rent, [OMRDD] OPWDD shall consider whether the provider's rate, fee or price, as a whole, including the amount of rent to be approved, would result in payment which is consistent with efficiency and economy.

[(b)] (2) If an approved lease (see glossary, Subpart 635-99 of this Part) or approved proprietary lease (see glossary, Subpart 635-99 of this Part) is between the provider or [consumer] individual lessee and a party which is not a related party, allowable lease costs shall be the lesser of contract rent or fair market [rental] rent.

[(c)] (3) If an approved lease or approved proprietary lease is between the provider or [consumer] individual lessee and a related party, allowable lease costs shall be the least of:

[(1)] (i) contract rent (see glossary, Subpart 635-99 of this Part);

[(2)] (ii) fair market [rental] rent (see glossary, Subpart 635-99 of this Part); or

[(3)] (iii) the landlord's net cost (see glossary, Subpart 635-99 of this Part).

[(d)] (4) The commissioner may waive the limitations on allowable costs as stated in [subdivision (c)] paragraph (3) of this section upon a showing that such limitations would jeopardize the opening or continued operation of the program or services and that the negotiations for the lease or proprietary lease were conducted as though the parties were not related.

[(e)] (5) The commissioner may, upon application from a provider, allow lease costs in an amount equal to contract rent and greater than fair market rent if the following conditions are met. The commissioner will allow such lease costs only for as long as it is necessary for the provider to relocate the program or services located on the lease property.

[(1)] (i) The lease is a renewal which is not pursuant to an option to renew.

[(2)] (ii) The lease is a renewal of a lease for an existing program or services.

[(3)] (iii) The provider has shown that:

[(i)] (a) the provider has made diligent efforts to negotiate a lease renewal for fair market rent or less;

[(ii)] (b) the provider has been unable to negotiate a lease renewal for less than the current rent;

[(iii)] (c) the parties to the lease renewal are not related; and

[(iv)] (d) allowance of lease costs in the amount of contract rent is necessary to ensure the continued operation of the program of services.

[(f)] [From the effective date of this regulation until January 1, 2001, allowable costs under leases between related parties in effect on September 1, 1984 shall be determined in accordance with the regulation in effect immediately preceding the effective date of this Subpart. On and after January 1, 2001, allowable costs under leases between related parties in effect on September 1, 1984 shall be determined in accordance with subdivision (c) of this section.]

[(g)] (6) Contract rent incurred pursuant to an approved lease or approved proprietary lease which is renewed pursuant to an option to renew is allowable.

[(h)] (7) Costs incurred pursuant to an approved lease or approved proprietary lease which is renewed other than pursuant to an option to renew (see glossary, Subpart 635-99 of this Part) shall be allowable as follows:

[(1)] (i) If the lease is between parties who are not related, allowable costs are determined in accordance with [subdivision (b)] paragraph (2) of this [section] subdivision.

[(2)] (ii) If the lease is between parties who are related, allowable costs are determined in accordance with [subdivision (c)] paragraph (3) of this [section] subdivision.

[(3)] (iii) [OMRDD] OPWDD shall decide whether to approve any such renewal at least 30 days before the last day the lease may be renewed, if the provider or [consumer] individual lessee has notified [OMRDD] OPWDD in accordance with [paragraph (4)] subparagraph (iv) of this [subdivision] paragraph.

[(4)] (iv) Whenever possible, the provider or [consumer] individual lessee shall submit to [OMRDD] OPWDD a request for approval of lease renewals at least 120 days prior to the last date for renewing the lease.

(b) This subdivision governs the allowability of lease costs applicable to continuing residential lease arrangements after December 31, 2011 for which OPWDD has not approved lease costs for an entire calendar year. This subdivision applies to residential lease renewals which are not renewals pursuant to an option to renew.

(1) There shall be an allowable lease cost, exclusive of any ancillary costs, for an entire calendar year. The allowable lease cost, exclusive of any ancillary costs, for a calendar year shall be the base lease amount for such calendar year increased by the annual increase percentage for such calendar year.

(2) Base lease amount. The base lease amount for a calendar year shall be the allowable lease cost calculated in accordance with this section in effect on December 31 of the prior calendar year, exclusive of any ancillary costs (see paragraph (4) of this subdivision).

(3) Annual increase percentage. The annual increase percentage for 2012 is 1.97%.

(4) Ancillary costs. Ancillary costs are those charges identified in a lease in addition to monthly rent. These include but are not limited to: special assessments, taxes, co-op or condominium maintenance fees, utility payments assessed to the lessee by the lessor pursuant to the terms of the lease, and lessor-financed renovations billed as additional rent.

(5) For ancillary costs under the terms of the lease to be allowable the lessee must submit an application to OPWDD specifying the nature and amounts of the ancillary costs. OPWDD may approve or disapprove the request or adjust the amount to be reimbursed based on whether the ancillary costs are reasonable and necessary.

New subdivision 635-99.1(h) is added as follows and the rest of the section is renumbered accordingly:

(h) Ancillary costs. Ancillary costs are those charges identified in a lease in addition to monthly rent. These include but are not limited to: special assessments, taxes, co-op or condominium maintenance fees, utility payments assessed to the lessee by the lessor pursuant to the terms of the lease, and lessor-financed renovations billed as additional rent.

New subdivision 635-99.1(as) is amended as follows:

(as) Fair market [rental] rent. The [rental] rent that the property would most probably command on the open market as indicated by [rentals] rents being paid and asked for comparable properties in the same geographic area as of the date of the appraisal.

1. Statutory authority:

a. OPWDD has the statutory authority to adopt rules and regulations necessary and proper to implement any matter under its jurisdiction as stated in the New York State Mental Hygiene Law Section 13.09(b).

b. OPWDD has the statutory responsibility for setting Medicaid rates and fees for other services in facilities licensed or operated by OPWDD, as stated in section 43.02 of the Mental Hygiene Law.

2. Legislative objectives: These proposed amendments further the legislative objectives embodied in sections 13.09(b) and 43.02 of the Mental Hygiene Law. The proposed amendments concern changes to the allowability of costs of continuing lease arrangements.

3. Needs and benefits: Historically, preliminary to OPWDD approving rent costs prescribed by a lease, it has conducted a site-specific rent study. This has been the procedure for new leases and for renewals. Although this process yields appropriate levels of reimbursement that take into account and accommodate the special needs of the individuals OPWDD serves, it is a labor-intensive process and consequently administratively both costly and burdensome. These amendments propose to revise this process and will apply to continuing lease arrangements after December 31, 2011 for which OPWDD has not approved lease costs for an entire calendar year. The amendments apply to residential lease renewals which are not renewals pursuant to an option to renew. The changes do not affect the approval process for new leases or other lease arrangements. For these continuing lease arrangements, OPWDD expects to discontinue its practice of conducting site-specific rent studies after the initial lease approval. Instead, it plans to implement an annual calendar year increase in the allowable lease costs. The increase will be determined by multiplying the base lease amount by a percentage increase established in the regulation. OPWDD intends to update this percentage increase annually in regulation based on the Rental of Primary Residence component of the Consumer Price Index. This will guarantee an independently derived, statistically sound and uniform means to adjust lease reimbursements fairly and expeditiously. This measure fulfills a streamlining objective that should produce administrative relief for providers and for the State.

4. Costs:

a. Costs to the Agency and to the State and its local governments: Because OPWDD expects that there will be a close correspondence between actual rent increases and the changes in the Consumer Price Index reflected in the percentage established in OPWDD regulation, it anticipates that this measure will be cost neutral. OPWDD expects to realize some administrative savings due to processing ease and time efficiency.

There will be no impact to local governments as a result of these specific amendments.

b. Costs to private regulated parties: There are neither initial capital investment costs nor initial non-capital expenses. There are no additional costs associated with implementation and continued compliance with the rule. There may be efficiencies that result in some administrative savings for providers. There may be differences in the reimbursement received for specific facilities between the current and revised methodologies, with some reimbursement higher and some lower. However, OPWDD expects that differences will be minor and that the overall reimbursement received by all providers will be about the same and that overall the result will be cost neutral.

5. Local government mandates: There are no new requirements imposed by the rule on any county, city, town, village; or school, fire, or other special district.

6. Paperwork: The proposed amendments do not require any additional paperwork to be completed by providers. On the contrary, the requirement for periodic documentation of lease renewal costs will be relaxed so that documentation of lease renewal costs will only be necessary in the years when OPWDD conducts a review to reconcile lease costs to lease reimbursements. This will decrease the paperwork for providers and for OPWDD.

7. Duplication: The proposed amendments do not duplicate any existing State or Federal requirements that are applicable to services for persons with developmental disabilities.

8. Alternatives: In developing this regulatory proposal, OPWDD consulted with representatives of provider associations and considered their suggestions in developing the methodology. OPWDD considered the inclusion of a specific reference to the Consumer Price Index (CPI) in lieu of publishing a specific number annually. However, OPWDD decided against the inclusion of specific references because of the difficulty of incorporation by reference related to the CPI in accordance with provisions of the State Administrative Procedure Act.

9. Federal standards: The proposed amendments do not exceed any minimum standards of the federal government for the same or similar subject areas.

10. Compliance schedule: OPWDD expects to finalize the proposed amendments in January 2012. There are no additional compliance activities associated with these amendments.

A regulatory flexibility analysis for small businesses and local governments is not being submitted because the amendments will not impose any adverse impact or reporting, recordkeeping or other compliance requirements on small businesses. There will be no professional services, capital, or other compliance costs imposed on small businesses as a result of these amendments.

The regulations amend the methodology to determine the allowable costs of continuing lease arrangements (in specified circumstances). In lieu of site-specific documentation of lease renewal costs and rent studies, OPWDD plans to adjust the existing allowable lease costs for all sites each calendar year by a percentage established in regulation which corresponds to the annual increase in the Rental of Primary Residence component of the Consumer Price Index. OPWDD expects this measure to be cost-neutral because an examination of the specific index to be utilized demonstrated a close correlation to historical rent increases for properties already being reimbursed. Moreover, providers will be relieved of performing the procedures previously required to update rent reimbursements and therefore may experience some administrative efficiencies.

These amendments do not impose any requirements on local governments.

The amendments will consequently have no adverse impacts on small businesses or local governments.

A rural area flexibility analysis for these amendments is not being submitted because the amendments will not impose any adverse impact or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas. There will be no professional services, capital, or other compliance costs imposed on public or private entities in rural areas as a result of the amendments.

The regulations amend the methodology for determining the allowable costs of continuing lease arrangements (in specified circumstances). In lieu of periodic documentation of lease renewal costs and rent studies, OPWDD plans to adjust the existing allowable lease costs for all sites each calendar year by a percentage established in regulation which corresponds to the annual increase in the Rental of Primary Residence component of the Consumer Price Index. OPWDD expects this measure to be cost-neutral because an examination of the specific index to be utilized demonstrated a close correlation to historical rent increases for properties already being reimbursed. Moreover, providers will be relieved of performing the procedures previously required to update rent reimbursements and therefore may experience some administrative efficiencies.

The amendments will consequently have no adverse impacts on public or private entities in rural areas.

A job impact statement for these amendments is not being submitted because it is apparent from the nature and purpose of the rule that it will not have a substantial adverse impact on jobs and employment.

The regulations amend the methodology to determine the allowable costs of continuing lease arrangements (in specified circumstances). In lieu of periodic documentation of lease renewal costs and rent studies, OPWDD plans to adjust the existing allowable lease costs for all sites each calendar year by a percentage established in regulation which corresponds to the annual increase in the Rental of Primary Residence component of the Consumer Price Index. OPWDD expects this measure to be cost-neutral because an examination of the specific index to be utilized demonstrated a close correlation to historical rent increases for properties already being reimbursed. Moreover, providers will be relieved of performing the procedures previously required to update rent reimbursements and therefore may experience some administrative efficiencies.

OPWDD does not, however, expect that the efficiencies experienced by providers would reduce workloads to the extent that it would result in any job losses and therefore the amendments are expected to have a neutral overall impact on jobs and employment opportunities among providers. OPWDD will also experience efficiencies as the new procedures will result in a decrease in workload which is compatible with its current staffing patterns.