Fully
Funded Cemetery
Maintenance Funds -
Now and Forever
By
David Zinner,
Executive Director
of Kavod v'Nichum
Introduction
State
Governments often
mandate cemeteries
to set aside a fixed
portion of cemetery
plot sales for a
maintenance fund,
thereby creating an
implied contract
between cemeteries
and consumers.
Consumers are given
the impression that
states have wisely
determined the
proper percentage to
insure that
investment income
from the fund will
support ongoing
maintenance. In
return for a portion
of the consumers'
plot purchase price
going into a state
mandated fund, the
cemetery agrees to
maintain the graves
and cemetery
property forever.
Yet this implied agreement is worth less that the old state or private insured Savings and Loan Association Insurance. Typically the cemetery maintenance funding percentages are arbitrary, the states do not test the adequacy of the maintenance funds, and the states have no power to compel adequate funding. Many cemeteries just wink at the ruse.
Cemetery maintenance funds are a good example of smoke and mirrors, leading consumers to believe in the safety of State Government implied, but empty, promises. Didn't we learn from the Savings and Loan scandals?
Under-funding
Maintenance Funds
Many
maintenance funds do
not generate enough
income to cover
expenses. Cemeteries
are dependent on
continued sales to
help pay for annual
maintenance. It is
not in the interests
of some cemetery
owners to build
their maintenance
funds. Instead they
want to maximize
cash flow for an
immediate bottom
line return.
This immediate financial gratification becomes an obvious problem when the cemetery is full and no additional plots can be sold. At that point the cemetery must rely only on investment returns to cover maintenance costs. But this under-funding is a problem for other stakeholders at other times, too.
1. Plot owners and relatives need to be assured that perpetual maintenance funds do not run out of money and cemetery owners coming back to the descendants asking for funds for upkeep.
2. Financial companies, banks, insurance companies, stock regulators and others need to do due diligence for cemetery borrowers and for purchasers of cemetery stock and cemetery companies.
3. Stockholders in cemeteries need to understand this funding adequacy and how it impacts a cemetery property's long term financial strength.
4. Local and State governments, as well as civic and religious groups, need to hold current cemetery owners to account, and head off any abandoned cemetery rescue efforts long before they are needed.
5. Regulators should use inadequate funding as a key indicator of potential managerial problems.
6. Startup cemeteries should have a good understanding of the funds needed not only to begin operations, but also to create long term business plans.
7. Cemeteries need a touchstone or model to help them determine that they have adequately provided for their future maintenance needs.
Analysis
of Maintenance Funds
It
is possible to
perform an actuarial
analysis, with
assumptions, to
determine if a
maintenance fund is
adequate for current
and future needs.
The major variables
of an analysis might
include:
An annual average maintenance cost dependent on the portion of land undeveloped, ready for development, or active; the portion of land that has flat, upright, mausoleum, or columbarium development; and the growing season.
Capital repairs.
Annual inflation factor for expenses.
Projections of future pre-need purchases, at-need purchases, and pre-need usage rates.
Projections of future investment returns.
Some cemeteries do perform an annual analysis of their maintenance fund, projected out for 20 and 50 years. However the results are closely held.
U.S.
Federal Role
The
Federal government
should encourage
active State
Government
participation in
cemetery regulation
and in insuring the
adequacy of State
mandated maintenance
funds. The Federal
government should
solicit, comment on
and distribute
models of actuarial
analysis for
cemetery management
funds.
The Federal government should also provide incentives for States to require that each cemetery perform such an actuarial analysis, using standardized analytical methods and where shortages are projected, a plan should be developed to rectify that shortage, including possible catch-up payments in the maintenance fund.