N.Y. Comp. Codes R. & Regs. Tit. 10 § 86-4.24 - Interest
(a) Necessary
interest on both current and capital indebtedness is an allowable cost for all
facilities.
(b) To be considered an
allowable cost, interest must be incurred to satisfy a financial need, and at a
rate not in excess of what a prudent borrower would have had to pay in the
money market at the time the loan was made. The interest must be paid to a
lender not related through control, ownership, affiliation or personal
relationship to the borrower. Financial need for capital indebtedness relating
to a specific project shall exist when all available restricted funds
designated for capital acquisition of that type have been considered for equity
purposes.
(c) Interest expense
shall be reduced by investment income with the exception of income from funded
depreciation, qualified pension funds, trusteed malpractice insurance funds or
in instances where income from gifts or grants is restricted by donors.
Interest on funds borrowed from a donor-restricted fund or funded depreciation
is an allowable expense. Investment incomeshall be defined as the aggregate net
amount realized from dividends, interest, rental income, interest earned on
temporary investment of withholding taxes, as well as all gains and losses. If
the aggregate net amount realized is a loss, the loss is not allowable.
Investment income shall reduce interest expense allowed for reimbursement as
follows:
(1) for all medical facilities,
investment income shall first be used to reduce operating interest expense for
that year;
(2) any remaining amount
of investment income, after application of paragraph (1) of this subdivision,
shall be used to reduce capital interest expense reimbursed that year for
medical facilities; and
(3) any
remaining amount of investment income after application of paragraph (2) of
this subdivision shall not be considered in the determination of allowable
costs.
(d) Interest on
current indebtedness shall be treated and reported as an operating,
administrative expense and shall be held to operating cost ceilings.
(e) Interest on capital indebtedness shall be
an allowable cost if the debt generating the interest is approved by the
commissioner, and incurred for authorized purposes, and if the principal of the
debt does not exceed either the amount approved by the commissioner or the cost
of the authorized purposes. Capital indebtedness shall mean all debt
obligations of a facility that are:
(1)
evidenced by a mortgage note or bond and secured by a mortgage on the land,
buildings or nonmovable equipment, a note payable secured by the nonmovable
equipment of a facility, or a capital lease;
(2) incurred for the purpose of financing the
acquisition, construction or renovation of land, building or nonmovable
equipment; and
(3) found by the
commissioner to be reasonable, necessary and in the public interest with
respect to the facility; or
(4)
incurred for the purposes of advance refunding or debt. Gains and losses
resulting from the advanced refunding of debt shall be treated as a deferred
charge or asset. This deferred charge or asset is to be amortized on a
straight-line basis over the period of the scheduled maturity date of the debt
being refunded.
(f)
Interest related to refinancing indebtedness shall be considered an allowable
cost only to the extent that it is payable with respect to an amount equal to
the unpaid principal of the indebtedness then being refinanced. However,
interest incurred on refinanced debt in excess of the previously unpaid balance
of the refinanced indebtedness will be allowable upon demonstration by the
operator to the commissioner that such refinancing will result in a debt
service savings over the life of the indebtedness.
(g) Where a public finance authority has
established a mortgage rate of interest such that sufficient cash flows exist
to retire the mortgage prior to the stated maturity, the amount of the mortgage
to be forgiven, at the time of such forgiveness, shall be capitalized as a
deferred asset and amortized over the remaining mortgage life, as a reduction
to the facility's capital expense.
(h) Voluntary facilities shall report
mortgage obligations financed by public finance authorities for their benefit
and which they are responsible to repay, as liabilities in the general fund
when such mortgage obligations are incurred.
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.