Compliance Economic Review
Pursuant to section 120.745(5), Florida Statutes
Rule 69K-7.005, Florida Administrative Code
Performance Bond - Mausoleums or Below-Ground Crypts
Department of Financial Services
Board of Funeral, Cemetery, and Consumer Services
April 2013
JUSTIFICATION FOR THE RULE
Rule 69K-7.005 implements section 497.272(8), Florida Statutes. Section 497.272(8), F.S. provides that a
cemetery that is selling interment space in a mausoleum, prior to the mausoleum being built, must
provide security to assure that the mausoleum will be built as promised to the consumers purchasing
space. Section 497.272(8), F.S. allows the cemetery to provide a surety performance bond to assure
construction of the mausoleum.
The pre-construction performance bond is required to be approximately equal to the cost of building the
mausoleum project.
Use of pre-construction performance bonds is unusual. As of Feb. 2013 there is only one preconstruction performance bond in force, in the approximate amount of $1.7 million. This preconstruction performance bond is the only such bond in effect in recent years.
The cemetery may sell space in the proposed mausoleum for several years before building the
mausoleum. The Division estimates that mausoleums secured by pre-construction performance bonds
are typically built within 5 years of issuance of the pre-construction performance bond.
Once the mausoleum is built, the cemetery cancels the pre-construction performance bond.
After analysis, it is determined that this rule does not meet the standard required for a Compliance
Economic Review.
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STATEMENT OF ESTIMATED REGULATORY COSTS
Use of pre-construction performance bonds is unusual. As of Feb. 2013 there is only one mausoleum
pre-construction performance bond in force, in the approximate amount of $1.7 million. The preconstruction performance bond is the only such bond in effect in recent years.
The cemetery pays an annual premium to the surety company (insurance company) for the preconstruction performance bond. The annual premium varies based on multiple factors, including the
surety company's evaluation of the credit worthiness of the cemetery. The annual premium for a preconstruction performance bond typically is in the range of one to two percent of the face amount of the
bond.
If we estimate the annual premium rate on the above-referenced $1.7 million pre-construction
performance bond to be 2% of the amount of the bond, the premium is $34,000 per year, and over 5
years the cost is estimated at $170,000.
The Division estimates that it takes approximately 20 hours of staff time of the entity acquiring the preconstruction performance bond to apply for the pre-construction performance bond, providing the
surety with required information and documentation. If the value of the staff time is estimated at $40
per hour on average, the transaction cost is $800.
The Division estimates that once the pre-construction performance bond is issued, it takes
approximately 5 hours of the business' staff time per year to monitor the bond, process the annual
premium invoice, get it paid, etc.; at $40 per hour, this would be a cost of $200 per year.
If the pre-construction performance bond is in effect for 5 years, the aggregate indirect cost would be
$1,600 ($800+ (4 x $200)).
Thus total direct and transaction costs are estimated at $171,600 over 5 years.
1. DIRECT OR INDIRECT ECONOMIC IMPACTS
Is this rule likely to have an adverse impact on economic growth, private sector job creation or
employment, or private sector investment in excess of $1 million in the aggregate within 5 years after
the implementation of the rule?
The Division answers this question in the negative. Total cost to the private sector is estimated at
$171,600 over 5 years. See economic analysis, above.
Is the rule likely to have an adverse impact on business competitiveness, including the ability of persons
doing business in the state to compete with persons doing business in other states or domestic markets,
productivity, or innovation in excess of $1 million in the aggregate within 5 years after the
implementation of the rule?
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The Division answers this question in the negative. Total cost to the private sector is estimated at
$171,600 over 5 years. See economic analysis, above.
Is the rule likely to increase regulatory costs, including any transactional costs, in excess of $1 million in
the aggregate within 5 years after the implementation of the rule.
The Division answers this question in the negative. Total cost to the private sector is estimated at
$171,600 over 5 years. See economic analysis, above.
2. NUMBER AND TYPES OF INDIVIDUALS AFFECTED
Affected persons are typically cemeteries that are part of a large group of deathcare industry businesses
under common control. These larger businesses are probably able to obtain more favorable terms on
the cost of a pre-construction performance bond, for a variety of reasons (greater net worth, audited
financial statements, etc.). Small independent cemeteries do not tend to use pre-construction
performance bonds.
3. COST TO THE AGENCY, AND TO ANY OTHER STATE AND LOCAL GOVERNMENT ENTITIES, OF
IMPLEMENTING AND ENFORCING THE PROPOSED RULE, AND ANY ANTICIPATED EFFECT ON STATE
OR LOCAL REVENUES
There will be no additional costs to the Division to enforce the rule. The rule has been in effect for many
years and all staff and resources needed to implement the rule are in place.
4. TRANSACTIONAL COSTS
The Division estimates that it takes approximately 20 hours of staff time of the entity acquiring the preconstruction performance bond, in applying for the pre-construction performance bond, providing the
surety with required documentation. If the value of the staff time is estimated at $40 per hour on
average, the transaction cost is $800. The Division estimates that once the pre-construction
performance bond is issued, it takes approximately 5 hours of the business' staff time per year to
monitor the bond, process the annual premium invoice, get it paid, etc.; at $40 per hour, this would be a
cost of $200 per year. If the pre-construction performance bond is in effect for 5 years, the aggregate
cost would be $1,600 ($800+ (4 x $200)).
5. ANALYSIS OF THE IMPACT ON SMALL BUSINESSES
The Division does not believe that any small businesses have used mausoleum pre-construction
performance bonds in recent years. The Division believes the rule has no effect on small businesses.
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METHODOLOGY USED TO CONDUCT THE ANALYSIS
The $40 per hour for staff time of industry personnel is an estimate of the average composite cost of
various grades of staff that must spend some time on the task for the licensee. This composite was
calculated from knowledge of the industry.
The Division has staff that has extensive experience in deathcare industry regulation and, to a significant
extent, the economics and empirical characteristics of deathcare industry businesses, particularly
deathcare industry licensees. The Division maintains records of pre-construction performance bonds in
force. The Division has diligently collated and applied all of said data to produce the good faith
estimates of regulatory costs presented herein.
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