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Wednesday, August 25, 2010
States' Financial Woes May Increase Taxes on Business
Even as the country struggles to gain any sort of economic momentum, the lingering unemployment debacle threatens to increase business costs well after we turn the corner in terms of stock prices, consumer spending, and increased construction and manufacturing.
Even if the economy suddenly became robust and all signs pointed to two decades of steady growth, the lingering effects of prolonged and rampant unemployment would continue to churn in a vicious cycle. State unemployment insurance coffers have scraped bottom; most states already have begun borrowing from the federal government to pay the benefits they’re guaranteed to receive. Those loans are interest free for a while. But when the grace period expires – and it almost surely will before states can pay back the money – interest begins to accrue. This creates the fiscal Cerberus states will find themselves unable to slay.
First, they must pay interest. Second, they must pay back the principal, a huge percentage of their operating budget. Third, they must replenish their own unemployment insurance funds depleted by the extended recession. To do that, they’ll have to cut social services and entitlements, such as reducing the size of unemployment checks or making qualification more strict (fat chance). Or, they’ll have to trim their own workforce. This would include policy analysts, middle managers, supervisors and other pencil pushers. Or, they can increase the taxes on company payrolls. In fact, if a state can’t pay back the federal money in a timely fashion, the tax rates on all that state’s businesses would go up to begin repayment.
According to CNN Money, “The median increase will be 27.5 percent. And employers in places such as Hawaii and Florida could see levies skyrocket more than three-fold.”
Higher taxes of any kind mean companies have less money with which to hire new employees. Moreover, higher employment taxes on those very employees would be a deterrent to hiring. States are contemplating raising the amount of each employee’s base pay that is subject to taxation, raising the rate at which that base pay is taxed, or a combination of both methods to increase revenue. This, on top of the other taxes that states have already burdened businesses with, as they try to deal with budget shortfalls in other entitlements.
One consequence of this disincentive to hire could be a growing demand for temporary/contract labor workers. “Temps” always have been seen as a way for employers – especially construction and manufacturing companies – to cope with fluctuating workloads. They bring in more people when they receive a large or unusual order or win several building contracts at the same time, stretching their full-time people too thin. When the project ends, the temporary workers go away, without the need to layoff loyal, longtime employees.
In fact, the temporary employment sector is seen as a leading indicator of where the economy is headed. The use of temporary employees declined sharply in the fourth quarter of 2007 - even in the retail sector at the beginning of the traditionally busy holiday period; it was a harbinger of our current recession.
On the flip side, temporary staff and field worker use sees an uptick as the economy improves. Companies don’t trust their good fortune and don’t want to commit to recruiting, hiring, and training new employees just to have to lay them off if the good times don’t last. This is a very real possibility in the construction industry, which is lagging other sectors as the economy tries to turn the corner.
Even programs designed to alleviate the short-term crunch are destined to create even larger problems in the future. States can receive federal stimulus money for use in paying unemployment benefits, but to get the money, they must liberalize their rules for who is eligible, possibly including part-time workers and workers who quit their jobs to take care of family obligations. Most states made qualification more restrictive in the 1980s in the wake of the last serious recession. So what’s the solution?
Maybe the federal government will extend the grace period so the loans to states won’t begin accruing interest until much later. Maybe Washington could forgive a portion of the principle, but such a provision likely would come with more demands to liberalize state unemployment eligibility and increase benefits, which we don’t need. That, of course, would necessitate another round of business taxes to pay for the influx of people receiving compensation when the next round of unemployment hits. That, in turn, means businesses would be more apprehensive to hire and incur the tax - even in good times, therefore extending the jobless recovery.
Honestly, as a business owner, one of my primary concerns is maintaining or reducing the costs to run my business. I hope the politicians keep that in mind when they “solve” this problem.
Even if the economy suddenly became robust and all signs pointed to two decades of steady growth, the lingering effects of prolonged and rampant unemployment would continue to churn in a vicious cycle. State unemployment insurance coffers have scraped bottom; most states already have begun borrowing from the federal government to pay the benefits they’re guaranteed to receive. Those loans are interest free for a while. But when the grace period expires – and it almost surely will before states can pay back the money – interest begins to accrue. This creates the fiscal Cerberus states will find themselves unable to slay.
First, they must pay interest. Second, they must pay back the principal, a huge percentage of their operating budget. Third, they must replenish their own unemployment insurance funds depleted by the extended recession. To do that, they’ll have to cut social services and entitlements, such as reducing the size of unemployment checks or making qualification more strict (fat chance). Or, they’ll have to trim their own workforce. This would include policy analysts, middle managers, supervisors and other pencil pushers. Or, they can increase the taxes on company payrolls. In fact, if a state can’t pay back the federal money in a timely fashion, the tax rates on all that state’s businesses would go up to begin repayment.
According to CNN Money, “The median increase will be 27.5 percent. And employers in places such as Hawaii and Florida could see levies skyrocket more than three-fold.”
Higher taxes of any kind mean companies have less money with which to hire new employees. Moreover, higher employment taxes on those very employees would be a deterrent to hiring. States are contemplating raising the amount of each employee’s base pay that is subject to taxation, raising the rate at which that base pay is taxed, or a combination of both methods to increase revenue. This, on top of the other taxes that states have already burdened businesses with, as they try to deal with budget shortfalls in other entitlements.
One consequence of this disincentive to hire could be a growing demand for temporary/contract labor workers. “Temps” always have been seen as a way for employers – especially construction and manufacturing companies – to cope with fluctuating workloads. They bring in more people when they receive a large or unusual order or win several building contracts at the same time, stretching their full-time people too thin. When the project ends, the temporary workers go away, without the need to layoff loyal, longtime employees.
In fact, the temporary employment sector is seen as a leading indicator of where the economy is headed. The use of temporary employees declined sharply in the fourth quarter of 2007 - even in the retail sector at the beginning of the traditionally busy holiday period; it was a harbinger of our current recession.
On the flip side, temporary staff and field worker use sees an uptick as the economy improves. Companies don’t trust their good fortune and don’t want to commit to recruiting, hiring, and training new employees just to have to lay them off if the good times don’t last. This is a very real possibility in the construction industry, which is lagging other sectors as the economy tries to turn the corner.
Even programs designed to alleviate the short-term crunch are destined to create even larger problems in the future. States can receive federal stimulus money for use in paying unemployment benefits, but to get the money, they must liberalize their rules for who is eligible, possibly including part-time workers and workers who quit their jobs to take care of family obligations. Most states made qualification more restrictive in the 1980s in the wake of the last serious recession. So what’s the solution?
Maybe the federal government will extend the grace period so the loans to states won’t begin accruing interest until much later. Maybe Washington could forgive a portion of the principle, but such a provision likely would come with more demands to liberalize state unemployment eligibility and increase benefits, which we don’t need. That, of course, would necessitate another round of business taxes to pay for the influx of people receiving compensation when the next round of unemployment hits. That, in turn, means businesses would be more apprehensive to hire and incur the tax - even in good times, therefore extending the jobless recovery.
Honestly, as a business owner, one of my primary concerns is maintaining or reducing the costs to run my business. I hope the politicians keep that in mind when they “solve” this problem.
Labels: Commercial, Construction Industry, Industrial
Wednesday, August 11, 2010
Social Networking Media For Your Business
If your company is like many in the construction industry, it may be slow to adopt new technology to its business. While that means you’re not making the most of your communications efforts and public relations initiatives, it also means that it’s probably not too late to gain a significant advantage over your competition.
Just imagine the business your company would enjoy if you were the only builder in your specialty or geographic area to employ value-added engineering, constructability analyses or design-build services. The strategic advantages of social networking are just as great. Even better, the groundwork already has been laid for you, and plenty of vendors, blog hosts and internet service firms are ready and able to help at very low cost. In fact, you probably already have on staff plenty of employees who understand the ins and outs of Flickr, Twitter, Linkedin, You Tube, Facebook and a myriad of other social networking sites and tools who can easily adapt your needs to these social networking media.
The most obvious use of these kinds of sites and services is to extend your company’s public relations endeavors. Slick, 4-color, printed capability brochures are impressive, but they are expensive to produce and, if you’re not careful, can become outdated in a matter of months. Consider the cost savings and immediacy of similar collateral material in an electronic format. When you complete an impressive project or solve a developer’s pressing problem, you can let other potential clients know about it instantaneously, with just a few keystrokes. When you use recycled materials, incorporate methods to reduce waste, use renewable heating, cooling, and lighting resources to mitigate a project’s impact on the environment, you can brag not only in print, but with photos and video.
The construction industry, especially in today’s economic climate, is becoming more competitive all the time. Long gone are the days of the “good ol’ boy network,” where club memberships, handshakes and low bids were the only issues owners considered when choosing their contractor. Perhaps lagging other industries a bit, construction now gets done when contractors can prove to clients they are the best firm to employ because they can save money, time, hassles, and complications. In short, service is the name of the game.
Here are some tips to ensure your public relations program includes social media, networking and other technological innovations to put your company at the forefront when developers are looking for a construction partner:
1. Especially with the growing interest in green construction and environmental stewardship, it is important to keep abreast of concerns the public has over construction projects. Monitor local sites dedicated to these issues – feedback sections on newspaper websites where readers can post their thoughts on news stories about your project, environmental blogs, and – if you’re building a public works project – government watchdog sites. This way, you can find out how the public perceives your project and your employees’ work habits and productivity. You also can post your own responses to these concerns, discussing the efforts you are making to mitigate dust, traffic disruptions, noise and more.
2. Use your own Twitter or Facebook page to publicize these efforts, using video and photography to illustrate your points.
3. Post positive media coverage on your page, and use it to give as many pertinent details as possible about your projects, your company’s culture of social responsibility and environmental stewardship and more. Journalists who can find with little effort much of the background information they require are more likely to view your firm in a positive light, and because much of their work already has been done for them, are more likely to pursue story ideas.
4. Post project pictures on Flickr or other photo-sharing sites, and allow journalists to view them and use them in print and electronic stories.
Other communications, both internal and external, can benefit from social media. If you’re building a LEED-certified project, companies have developed environmental sensors that measure recycling, energy savings and other nature-friendly measures used in your project. These results can be accessed online, in real time. Consider posting these gauges on your website or social networking page.
A social media policy can help your employees and supervisors keep abreast of the happenings in your company, its jobsites and its regional offices. Employees, both office staff and field employees, who are engaged in the company’s activities and decisions have a greater feeling of belonging and engender greater loyalty. Potential employees also can be enticed and recruited through new media. Younger workers, especially, gather large percentages of their daily news and information from the internet, so companies that want to reach them must have a web presence.
Finally, social media also can be used to manage and track bids and sales leads and position your company as the best for certain types of construction and your firm’s executives as experts on issues affecting the industry.
Just imagine the business your company would enjoy if you were the only builder in your specialty or geographic area to employ value-added engineering, constructability analyses or design-build services. The strategic advantages of social networking are just as great. Even better, the groundwork already has been laid for you, and plenty of vendors, blog hosts and internet service firms are ready and able to help at very low cost. In fact, you probably already have on staff plenty of employees who understand the ins and outs of Flickr, Twitter, Linkedin, You Tube, Facebook and a myriad of other social networking sites and tools who can easily adapt your needs to these social networking media.
The most obvious use of these kinds of sites and services is to extend your company’s public relations endeavors. Slick, 4-color, printed capability brochures are impressive, but they are expensive to produce and, if you’re not careful, can become outdated in a matter of months. Consider the cost savings and immediacy of similar collateral material in an electronic format. When you complete an impressive project or solve a developer’s pressing problem, you can let other potential clients know about it instantaneously, with just a few keystrokes. When you use recycled materials, incorporate methods to reduce waste, use renewable heating, cooling, and lighting resources to mitigate a project’s impact on the environment, you can brag not only in print, but with photos and video.
The construction industry, especially in today’s economic climate, is becoming more competitive all the time. Long gone are the days of the “good ol’ boy network,” where club memberships, handshakes and low bids were the only issues owners considered when choosing their contractor. Perhaps lagging other industries a bit, construction now gets done when contractors can prove to clients they are the best firm to employ because they can save money, time, hassles, and complications. In short, service is the name of the game.
Here are some tips to ensure your public relations program includes social media, networking and other technological innovations to put your company at the forefront when developers are looking for a construction partner:
1. Especially with the growing interest in green construction and environmental stewardship, it is important to keep abreast of concerns the public has over construction projects. Monitor local sites dedicated to these issues – feedback sections on newspaper websites where readers can post their thoughts on news stories about your project, environmental blogs, and – if you’re building a public works project – government watchdog sites. This way, you can find out how the public perceives your project and your employees’ work habits and productivity. You also can post your own responses to these concerns, discussing the efforts you are making to mitigate dust, traffic disruptions, noise and more.
2. Use your own Twitter or Facebook page to publicize these efforts, using video and photography to illustrate your points.
3. Post positive media coverage on your page, and use it to give as many pertinent details as possible about your projects, your company’s culture of social responsibility and environmental stewardship and more. Journalists who can find with little effort much of the background information they require are more likely to view your firm in a positive light, and because much of their work already has been done for them, are more likely to pursue story ideas.
4. Post project pictures on Flickr or other photo-sharing sites, and allow journalists to view them and use them in print and electronic stories.
Other communications, both internal and external, can benefit from social media. If you’re building a LEED-certified project, companies have developed environmental sensors that measure recycling, energy savings and other nature-friendly measures used in your project. These results can be accessed online, in real time. Consider posting these gauges on your website or social networking page.
A social media policy can help your employees and supervisors keep abreast of the happenings in your company, its jobsites and its regional offices. Employees, both office staff and field employees, who are engaged in the company’s activities and decisions have a greater feeling of belonging and engender greater loyalty. Potential employees also can be enticed and recruited through new media. Younger workers, especially, gather large percentages of their daily news and information from the internet, so companies that want to reach them must have a web presence.
Finally, social media also can be used to manage and track bids and sales leads and position your company as the best for certain types of construction and your firm’s executives as experts on issues affecting the industry.
Labels: Commercial, Construction Industry, Industrial
Wednesday, June 9, 2010
Wind Energy
With the Gulf oil well disaster on everyone’s mind, renewable energy has received something of a boost in our collective consciences. With that background, I recently attended the American Wind Energy Association conference in Dallas to learn about this green power source and its implications on the construction industry.
Former President George W. Bush, delivered a keynote address that called for a redoubling of efforts to incorporate wind into the nation’s power mix. He said more use of wind power not only would benefit the environment, but also make the nation safer by removing reliance on foreign sources of oil and making it tougher for domestic or foreign enemies to disrupt the flow of power. Bush, while governor of Texas, instituted one of the most ambitious wind-power initiatives in the country. He urged America to encourage technological advances and investment by removing barriers to green power entrepreneurs.
Non-residential construction continues to suffer as a whole in this economic recovery, while green construction and sustainability gain traction. These issues have converged to place greater urgency on renewable energy, and Congress has responded. Senators from the East and Midwest, have expressed to the chamber’s leaders the need to create jobs and maintain the country’s competitive advantage in manufacturing sectors.
Diversifying America’s energy supply also bodes well for contractors. With private-sector jobs very slowing coming back, public infrastructure projects will be the industry’s lifeblood for some time to come. Industry associations have been quick to endorse the senators’ position that American jobs depend on diverse and comprehensive measures to spur investment, limit costs and encourage efficient use of limited resources.
For green energy policies to work, however, tax incentives that allow companies to retrofit and expand plants and equipment, financial incentives to drive investments and loan programs, reasonable regulatory policies to grease the transitional rails, and strong but attainable federal renewable electricity standards will make this energy sector a more inviting target for builders and manufacturers. Time is not on America’s side and we risk losing American jobs if we fail to pass legislation that provides the hard targets needed to strengthen our industries.
he Dallas conference offered some terrific insights into the power, possibilities, and challenges of harnessing wind power. Wind turbines can be an effective way to use “free” energy. Vast expanses of prairie, desert, and offshore locations not suitable for other agricultural or commercial uses, can be prime locations for wind turbines. Texas has proven wind’s efficacy. The state generates nearly 10 gigawatts of electricity from wind. The state made a commitment to this resource, and today is home 30 percent of the country’s wind turbines. As a Texas resident I see evidence of this wind industries growing success on my home town of Amarillo.
Klickitat County, Washington is another success story. Like many areas hit by the decline of manufacturing, the area lost some 700 jobs when an aluminum smelter closed. But a dozen wind farms have recouped those job losses and created a new revenue stream in the form of land leases for farmers also hit by shrinking profit margins. The power projects themselves and the infrastructure, retail, and residential construction needs of a rebounding population also have been a boon to the local construction industry while directly paying $3.5 million into the county’s tax coffers, according to Mike Canon, Klickitat County's economic-development director, in a story from the Seattle Times.
There are more than a few challenges to overcome. Utilities must commit to wind, according to a seminar at the Dallas conference. Wind must also make not only economic sense, but also present manageable start-up costs and fit into their power portfolio. Even then, they must address issues such as owning wind generation vs. purchasing wind-generated electricity and the logistics of transmitting and delivering the power generated.
Another session dealt with the efficiency of wind turbines and the unpredictability of the wind to propel them.
Governments can help ease these and other obstacles to greener building by adopting strong public policy, such as those outlined in the Associated General Contractors’ Building a Green Future plan, which urges that:
• “Pragmatic investments” in research and technology.
• Faster approval for new sustainable forms of power generation, including nuclear, wind and geothermal power facilities be forthcoming.
Former President George W. Bush, delivered a keynote address that called for a redoubling of efforts to incorporate wind into the nation’s power mix. He said more use of wind power not only would benefit the environment, but also make the nation safer by removing reliance on foreign sources of oil and making it tougher for domestic or foreign enemies to disrupt the flow of power. Bush, while governor of Texas, instituted one of the most ambitious wind-power initiatives in the country. He urged America to encourage technological advances and investment by removing barriers to green power entrepreneurs.
Non-residential construction continues to suffer as a whole in this economic recovery, while green construction and sustainability gain traction. These issues have converged to place greater urgency on renewable energy, and Congress has responded. Senators from the East and Midwest, have expressed to the chamber’s leaders the need to create jobs and maintain the country’s competitive advantage in manufacturing sectors.
Diversifying America’s energy supply also bodes well for contractors. With private-sector jobs very slowing coming back, public infrastructure projects will be the industry’s lifeblood for some time to come. Industry associations have been quick to endorse the senators’ position that American jobs depend on diverse and comprehensive measures to spur investment, limit costs and encourage efficient use of limited resources.
For green energy policies to work, however, tax incentives that allow companies to retrofit and expand plants and equipment, financial incentives to drive investments and loan programs, reasonable regulatory policies to grease the transitional rails, and strong but attainable federal renewable electricity standards will make this energy sector a more inviting target for builders and manufacturers. Time is not on America’s side and we risk losing American jobs if we fail to pass legislation that provides the hard targets needed to strengthen our industries.
he Dallas conference offered some terrific insights into the power, possibilities, and challenges of harnessing wind power. Wind turbines can be an effective way to use “free” energy. Vast expanses of prairie, desert, and offshore locations not suitable for other agricultural or commercial uses, can be prime locations for wind turbines. Texas has proven wind’s efficacy. The state generates nearly 10 gigawatts of electricity from wind. The state made a commitment to this resource, and today is home 30 percent of the country’s wind turbines. As a Texas resident I see evidence of this wind industries growing success on my home town of Amarillo.
Klickitat County, Washington is another success story. Like many areas hit by the decline of manufacturing, the area lost some 700 jobs when an aluminum smelter closed. But a dozen wind farms have recouped those job losses and created a new revenue stream in the form of land leases for farmers also hit by shrinking profit margins. The power projects themselves and the infrastructure, retail, and residential construction needs of a rebounding population also have been a boon to the local construction industry while directly paying $3.5 million into the county’s tax coffers, according to Mike Canon, Klickitat County's economic-development director, in a story from the Seattle Times.
There are more than a few challenges to overcome. Utilities must commit to wind, according to a seminar at the Dallas conference. Wind must also make not only economic sense, but also present manageable start-up costs and fit into their power portfolio. Even then, they must address issues such as owning wind generation vs. purchasing wind-generated electricity and the logistics of transmitting and delivering the power generated.
Another session dealt with the efficiency of wind turbines and the unpredictability of the wind to propel them.
Governments can help ease these and other obstacles to greener building by adopting strong public policy, such as those outlined in the Associated General Contractors’ Building a Green Future plan, which urges that:
• “Pragmatic investments” in research and technology.
• Faster approval for new sustainable forms of power generation, including nuclear, wind and geothermal power facilities be forthcoming.
Labels: Commercial, Construction Industry, Industrial, Wind Energy
Saturday, May 22, 2010
Immigration Reform
Arizona’s much-ballyhooed illegal immigration law shows how frustrated Americans have become with the absence of fair, reasonable, comprehensive federal efforts to secure the nation’s borders, deal with the ongoing problem of worker shortages for many jobs and deal with the estimated 10 million to 12 million undocumented workers in the country.
Contractors and others who employ large numbers of Mexican and other immigrants long have supported an all-encompassing federal policy that would ensure an adequate supply of these workers, especially for jobs many Americans are often unwilling to perform. With the ongoing recession and resulting 25 percent unemployment in the construction industry this need for an adequate worker pool is not as pressing as it was a decade ago. Still, the construction industry is cyclical, and it is expected that the need for more qualified craft workers will again become critical as the recovery gains traction.
Like all loyal Americans, contractors support homeland security efforts and understand that keeping undocumented aliens out of the country is an important part of a workable immigration policy. Contractors support policies that strengthen the borders. So too is a better understanding of the impact illegal immigrants have on healthcare, the education system and employment of American citizens and legal immigrants.
But the issue is multi-faceted, and construction contractors, as much as professionals in any other industry, have a vested interest in protecting the rights of their workers. The vast majority of today’s federal immigration resources are spent on enforcement – Immigration and Naturalization Services raids on construction sites, restaurant kitchens and other places of business. Of course, workers who enter the country illegally and the companies that knowingly hire them should face increased penalties.
But the vast majority of contractors follow all the rules. The few cheaters who hire illegal aliens often pay them less than their jobs are worth and may even ignore basic safety measures, knowing workers in the country illegally have little leverage and will not go to the authorities. These few employers not only take advantage of their undocumented workers, they also enjoy an unfair advantage over good companies they compete with for jobs. These companies find it easy to classify illegal immigrants as independent contractors, skirting laws requiring them to provide workers’ compensation insurance and pay payroll taxes.
Because the reality is that these unscrupulous employers do exist, they must face severe penalties when they’re caught. Unfortunately, by-the-book contractors easily can find themselves employing an illegal immigrant because of our cumbersome, flawed system of immigration checks and balances. Currently, the government wants employers to use an inadequate, incomplete computer verification database to ferret out undocumented immigrants who apply for jobs. With this tool as their best resource, mistakes are inevitable. It would be unfair for force contractors to use this flawed database and then penalize them when an undocumented worker slips through the computer network’s cracks and find their way onto the payroll.
Without a safe harbor provision to protect employers if they mistakenly hire an illegal immigrant even after performing their pre-hire due diligence, a reform package would be worse than worthless. It would be counterproductive, presenting incentives for companies to discriminate against applicants who might appear to be of Latin extraction or who speak with a pronounced accent.
A fair immigration policy also must include a reasonably easy way for workers to enter the country legally. A guest-worker program should allow companies to look beyond America’s borders when U.S. workers are not available. The number of H-2B visas are woefully inadequate to fill the construction jobs that will need to be filled as the economy improves.
A workable system must provide an opportunity for those here illegally to achieve legal status and remain in the country to work. Amnesty is a hot-button word. Many hard-working Americans oppose plans to give immunity and citizenship to immigrants who have lived and worked in the U.S. for years – taking advantage of the nation’s health care and education systems while paying no income taxes. Still, those workers have contributed to the country’s productivity and have established ties to their communities. They deserve to be placed on a path to citizenship after meeting fair requisites.
Clearly, immigration reform involves much more than simply building a 30-foot electric fence along the Rio Grande. True reform will respect the dignity of those who wish to make better lives for their families, deal forcefully with those who take advantage of desperate people for their own unfair advantage and ensure the country’s security, education and health care resources are maintained.
Labels: Commercial, Construction Industry, Industrial
Thursday, May 6, 2010
Alternative Financing for Construction Companies
Skittish banks have forgotten the combination to the vault, leaving contractors scrambling to meet payroll, survive cash flow squeezes and even bid on the few jobs in the offing. With little to indicate that trend will turn around - despite stimulus incentives for banks to loosen the purse strings - many builders are seeking alternative financing options.
While some look for other sources of debt financing - hedge funds, insurance companies, pension plans, etc., others are turning to their equity and even their assets to make ends meet or take advantage of business or expansion opportunities.
Equity financing - raising money by selling shares of the company - has been a common method used by many types of businesses. It reduces or eliminates the monthly principal and interest payment, and it reduces the company owners' exposure by spreading the risk. Shareholders have no recourse if a construction company fails. Lenders still must be paid back. While attractive in these respects, equity financing also means surrendering some control of a firm. Many construction companies are family-owned and operated. Handing over autonomy may feel like turning over a child to a foster family. If equity financing is unavailable or too heartrending for you, you may consider capitalizing on the value of your assets. Loans backed by high-dollar assets such as real estate, contractor-owned construction equipment or supplier-stocked inventory make lenders less skittish in the down economy. When the economy goes south, banks are sticklers for maintaining strict standards for underwriting loans. When contractors need quick cash to fund operations, asset-based lenders become more amenable.
"The key for an asset-based lender is the collateral and its availability," Commercial Finance Association Chief Operating Officer Brian Cove told the Wall Street Journal. "Even in a tough economy where providers of credit are really tightening up lending, [asset-based lenders] are still out there. The key for an asset-based lender is the collateral and its availability. Most asset-based lenders keep a close eye on that collateral, with some even making regular visits to the client's warehouse to spot-check inventory."
Accounts receivable is another asset a financier may lend against. This is another common practice for many businesses, though it may not be as widely accepted for contractors because a significant amount of a builder's receivables likely will be in the form of progress payments due. Enter the factor.
Factors are becoming the financing source of choice for many contractors and other business owners faced with impending obligations but far-off windfalls. Factoring allows contractors to sell an invoice (or more than one) in order to obtain cash in a hurry. It allows the factor to turn a profit (the greater the risk the invoice won't be paid, the greater the profit for the factor if it is). Similar to invoice discounting, where invoices serve as collateral for a loan, factoring can be a life saver when short-term debt comes due or when an attractive opportunity arises.
For example, a contractor's $50,000 payroll is due in two weeks, and he's out of cash. A $100,000 progress payment from an owner is due in 30 days. The contractor can sell that invoice to a factor, receiving $70,000 in the nick of time to prevent his employees from revolting because of bounced paychecks. In 30 days, when the owner pays his bill, the factor pays the contractor another $25,000 or so and pockets a tidy $5,000 profit - his fee for letting the contractor use his money for a couple of weeks and, in non-recourse factoring, for accepting the (usually slight) risk that the owner would default.
Alternative financing also can serve as a way to pay off debt more quickly, buy out a competitor, or lease or purchase equipment.
Still, as with any financial decision, you should consider the disadvantages of using factoring as a funding method:
While some look for other sources of debt financing - hedge funds, insurance companies, pension plans, etc., others are turning to their equity and even their assets to make ends meet or take advantage of business or expansion opportunities.
Equity financing - raising money by selling shares of the company - has been a common method used by many types of businesses. It reduces or eliminates the monthly principal and interest payment, and it reduces the company owners' exposure by spreading the risk. Shareholders have no recourse if a construction company fails. Lenders still must be paid back. While attractive in these respects, equity financing also means surrendering some control of a firm. Many construction companies are family-owned and operated. Handing over autonomy may feel like turning over a child to a foster family. If equity financing is unavailable or too heartrending for you, you may consider capitalizing on the value of your assets. Loans backed by high-dollar assets such as real estate, contractor-owned construction equipment or supplier-stocked inventory make lenders less skittish in the down economy. When the economy goes south, banks are sticklers for maintaining strict standards for underwriting loans. When contractors need quick cash to fund operations, asset-based lenders become more amenable.
"The key for an asset-based lender is the collateral and its availability," Commercial Finance Association Chief Operating Officer Brian Cove told the Wall Street Journal. "Even in a tough economy where providers of credit are really tightening up lending, [asset-based lenders] are still out there. The key for an asset-based lender is the collateral and its availability. Most asset-based lenders keep a close eye on that collateral, with some even making regular visits to the client's warehouse to spot-check inventory."
Accounts receivable is another asset a financier may lend against. This is another common practice for many businesses, though it may not be as widely accepted for contractors because a significant amount of a builder's receivables likely will be in the form of progress payments due. Enter the factor.
Factors are becoming the financing source of choice for many contractors and other business owners faced with impending obligations but far-off windfalls. Factoring allows contractors to sell an invoice (or more than one) in order to obtain cash in a hurry. It allows the factor to turn a profit (the greater the risk the invoice won't be paid, the greater the profit for the factor if it is). Similar to invoice discounting, where invoices serve as collateral for a loan, factoring can be a life saver when short-term debt comes due or when an attractive opportunity arises.
For example, a contractor's $50,000 payroll is due in two weeks, and he's out of cash. A $100,000 progress payment from an owner is due in 30 days. The contractor can sell that invoice to a factor, receiving $70,000 in the nick of time to prevent his employees from revolting because of bounced paychecks. In 30 days, when the owner pays his bill, the factor pays the contractor another $25,000 or so and pockets a tidy $5,000 profit - his fee for letting the contractor use his money for a couple of weeks and, in non-recourse factoring, for accepting the (usually slight) risk that the owner would default.
Alternative financing also can serve as a way to pay off debt more quickly, buy out a competitor, or lease or purchase equipment.
Still, as with any financial decision, you should consider the disadvantages of using factoring as a funding method:
- Factors are in the business to make money. They often charge an initiation fee as well as interest based on when the invoice is paid.
- If you don't understand the terms of the factoring agreement, you could be in for a nasty surprise. With recourse factoring, if the client defaults on the invoice, the factor can seek redress from you. "One of the most common traps for small businesses using factoring is the assumption that outsourcing the function means outsourcing the responsibility," writes Gregg Elberg, president of Gregg Financial Services in San Anselmo, Calif.
- Client relations could suffer if the factor uses business methods different from those used by the contractor - methods customers may have become accustomed to.
How Will the Healthcare Reform Act Affect Construction Firms?
Love it or hate it, comprehensive healthcare reform is a reality - at least until the lawsuits reach the Supreme Court and the midterm election results are tallied. So, what does the new law mean for construction companies?
If your firm already provides a qualified healthcare benefit that does not include prescription drug coverage for retirees, the answer is, "not much." At least, not for several years. That's good news, considering the Senate version of the bill contained the onerous Merkley Amendment that would have forced all but the smallest construction companies to provide health insurance or pay a fine. The amendment, which singled out construction firms (it applied to companies with as few as six employees while the threshold for other industries is 50 workers) was removed from the House version and the final bill that was signed by President Obama.
While smaller contractors will be spared this additional expense, those with 50 or more full-time workers must comply or face a fine of $750 per full-timer. What's more, employees must be enrolled immediately to avoid penalties for imposing waiting periods.
Although the smaller companies will not be compelled to offer healthcare insurance, the new acts do offer incentives to entice them to provide the benefit to their workers. Companies with 25 or fewer employees can take advantage of tax credits for offering insurance. Down the road - starting in 2014, companies with 100 or fewer workers can form a "buyers group," banding together to act as one large company for insurance purchasing purposes. This pooling of assets and risks will allow them to take advantage of volume discounts from insurance providers. And businesses with 50 or fewer employees can access a "health insurance exchange," a one-stop shop for comparing rates and benefits.
If your company is small enough not to have to worry about this employer mandate, the most immediate effects probably will be felt by your company's benefits administrator and payroll department, as the Patient Protection and Affordable Care Act and the Health Care & Education Affordability Reconciliation Act of 2010 come online.
The bean counters will have to keep track of employees' flexible and health savings accounts to ensure they don't exceed the $2,500 yearly contribution limit beginning next year and that workers aren't reimbursed through the accounts for non-prescription drugs. The payroll department, beginning in 2013, will deduct another .9 percent from the wages of big earners ($200,000 or more per year) to cover an increase in the Medicare tax.
Additional recordkeeping will be required beginning next year to determine the cost of healthcare coverage the employer provides to each employee each year. Using a formula similar to COBRA calculations, according to international law firm Proskauer Rose LLP, the amounts must be reported on employees' W-2 forms.
The Proskauer firm notes that employer-run group health insurance plans may avoid some of the other new requirements. Plans will be "grandfathered" if it was in operation on March 23, 2010. According to Workforce Management magazine's website, new and non-qualified plans must offer coverage that extends to employees' children "up to age 26, eliminate lifetime dollar limits and remove pre-existing condition exclusions, if any, for children up to age 19."
Grandfathering provisions will exempt existing individual and group health plans from the age 26 rule, some lifetime limits, waiting period penalties, and required coverage of certain preventative care procedures.
Still, construction companies with grandfathered plans are not completely off the hook. For example, no employer group plan will be allowed to contain pre-existing condition exclusions from group health plans for children under the age 19 or drop coverage for a patient simply because the person's insurance claims for coverage become extraordinarily costly for the insurance provider. Of course, coverage still could be dropped in cases of insurance fraud.
All plans also must remove lifetime maximum limits on coverage of essentialbenefits and some other limits. Limits still will be allowed on the certain medical procedures
Additional costs and administrative requirements are in store for large contractors and those that offer high-end healthcare benefits. Builders who employ more than 200 workers must automatically enroll otherwise uninsured employees into the companies' health plan. Employers that provide "high-cost" health insurance plans (costing more than $8,500 per individual, $23,000 for families and $9,800 for retirees) eventually will incur a hefty tax of 40 percent of the excess benefit. These trigger thresholds will be indexed to inflation and will increase in states where healthcare costs are among the highest in the nation.
One of the biggest expenses the new healthcare law will impose will apply to companies that provide drug coverage for employees. The subsidies employers receive for providing these Medicare Part D benefits will no longer be excluded from taxation.
If your firm already provides a qualified healthcare benefit that does not include prescription drug coverage for retirees, the answer is, "not much." At least, not for several years. That's good news, considering the Senate version of the bill contained the onerous Merkley Amendment that would have forced all but the smallest construction companies to provide health insurance or pay a fine. The amendment, which singled out construction firms (it applied to companies with as few as six employees while the threshold for other industries is 50 workers) was removed from the House version and the final bill that was signed by President Obama.
While smaller contractors will be spared this additional expense, those with 50 or more full-time workers must comply or face a fine of $750 per full-timer. What's more, employees must be enrolled immediately to avoid penalties for imposing waiting periods.
Although the smaller companies will not be compelled to offer healthcare insurance, the new acts do offer incentives to entice them to provide the benefit to their workers. Companies with 25 or fewer employees can take advantage of tax credits for offering insurance. Down the road - starting in 2014, companies with 100 or fewer workers can form a "buyers group," banding together to act as one large company for insurance purchasing purposes. This pooling of assets and risks will allow them to take advantage of volume discounts from insurance providers. And businesses with 50 or fewer employees can access a "health insurance exchange," a one-stop shop for comparing rates and benefits.
If your company is small enough not to have to worry about this employer mandate, the most immediate effects probably will be felt by your company's benefits administrator and payroll department, as the Patient Protection and Affordable Care Act and the Health Care & Education Affordability Reconciliation Act of 2010 come online.
The bean counters will have to keep track of employees' flexible and health savings accounts to ensure they don't exceed the $2,500 yearly contribution limit beginning next year and that workers aren't reimbursed through the accounts for non-prescription drugs. The payroll department, beginning in 2013, will deduct another .9 percent from the wages of big earners ($200,000 or more per year) to cover an increase in the Medicare tax.
Additional recordkeeping will be required beginning next year to determine the cost of healthcare coverage the employer provides to each employee each year. Using a formula similar to COBRA calculations, according to international law firm Proskauer Rose LLP, the amounts must be reported on employees' W-2 forms.
The Proskauer firm notes that employer-run group health insurance plans may avoid some of the other new requirements. Plans will be "grandfathered" if it was in operation on March 23, 2010. According to Workforce Management magazine's website, new and non-qualified plans must offer coverage that extends to employees' children "up to age 26, eliminate lifetime dollar limits and remove pre-existing condition exclusions, if any, for children up to age 19."
Grandfathering provisions will exempt existing individual and group health plans from the age 26 rule, some lifetime limits, waiting period penalties, and required coverage of certain preventative care procedures.
Still, construction companies with grandfathered plans are not completely off the hook. For example, no employer group plan will be allowed to contain pre-existing condition exclusions from group health plans for children under the age 19 or drop coverage for a patient simply because the person's insurance claims for coverage become extraordinarily costly for the insurance provider. Of course, coverage still could be dropped in cases of insurance fraud.
All plans also must remove lifetime maximum limits on coverage of essentialbenefits and some other limits. Limits still will be allowed on the certain medical procedures
Additional costs and administrative requirements are in store for large contractors and those that offer high-end healthcare benefits. Builders who employ more than 200 workers must automatically enroll otherwise uninsured employees into the companies' health plan. Employers that provide "high-cost" health insurance plans (costing more than $8,500 per individual, $23,000 for families and $9,800 for retirees) eventually will incur a hefty tax of 40 percent of the excess benefit. These trigger thresholds will be indexed to inflation and will increase in states where healthcare costs are among the highest in the nation.
One of the biggest expenses the new healthcare law will impose will apply to companies that provide drug coverage for employees. The subsidies employers receive for providing these Medicare Part D benefits will no longer be excluded from taxation.
Friday, March 26, 2010
Complying With Prevailing Wage Laws
As the economy languishes, public works projects – which in good times, many contractors wouldn’t touch with a 10-foot length of red tape – are starting to look better and better. If you’re among the contractors who find themselves holding their noses and bidding on government-funded jobs, be aware of the prevailing wage hoops through which you’ll be required to jump. In fact, even if you’re a public works construction veteran, it couldn’t hurt to review the appropriate measures for complying with prevailing wage procedures and requirements.
The Davis-Bacon Act sets forth pay and benefit rules that contractors must follow on projects which are funded by federal money. State prevailing wage regulations do the same for state-funded jobs and vary slightly depending upon the jurisdiction. And, because building projects that use both federal and state money usually are subject to more stringent requirements, the first step when bidding and completing infrastructure projects is to get your hands on the appropriate rules.
Still, most projects will be governed by similar prevailing wage laws. Here is a primer to keep you in compliance:
• Fully one-half of your workforce must be designated as journeymen and be paid at least the full prevailing rates as denoted on the project’s wage. Workers designated as laborers may be subject to lower wage rates. The other half of the workforce can be apprentices and receive a percentage of the full rate, depending upon their level of training. Only those enrolled in a qualified apprenticeship program can be designated as apprentices. “Helpers” have no place in federal projects. Check your state’s law to see if it allows the use of helpers at lower wage rates. Apprentices assigned to a job before or in favor of a journeyman must be paid at the journeyman rate. For instance, if you employ eight electricians on a site four must be journeymen and the other four can be apprentices. But if you assign two journeymen and six apprentices, the four “unpaired” apprentices must get the full journeyman rate.
• All workers on public works projects must be paid weekly. Certified payroll records must be turned in to the designated state or federal agency.
• The wage decision also will tell you the value of the fringe benefits you must provide workers on a prevailing wage project. ALL workers – apprentices, as well as journeymen – get the whole enchilada when it comes to these benefits.
If you don’t offer enough qualified benefits, or if an employee chooses not to participate in some benefit programs, you must pay the difference in cash to each employee. Your benefit program probably is qualified if it’s managed by a third party, but check with a consultant or your human resources professional to be sure. If you offer paid holidays and vacations, you can deduct the fair value of those benefits from the fringe package. Note that worker’s compensation is not considered a fringe benefit, and it cannot be deducted from the package.
• You’ll probably also have to pay into a qualified training program for every hour worked on the job. Some of these programs, notably those run by the Associated Builders and Contractors, apply the contributions to an employer’s account. The employer can draw on this account to pay for training for his apprentices. Others, such as those run by many states, pool the contributions from all contractors on public works projects and divide them among apprenticeship training programs in the state based on the number of apprentices they graduate.
• Projects in rural areas or located far from your base of operations may require you to pay workers extra to account for excess travel time to the jobsite or, in rare instances, to pay for temporary housing if commuting would be impractical.
The addition of Davis-Bacon and state prevailing wage regulation adds a few layers of complexity to the plunge into public works construction. But with a systematic approach to compliance, these hurdles can be easily overcome with minimal headaches. If you’re new to the public works arena, I suggest you consult a labor attorney and accountant to help set up your compliance assurance or contract with an established monitoring and compliance consultant or provider. Your local chapter of the Associated Builders and Contractors can offer tips and recommend sources of assistance.
Whether you keep your compliance team in house or use a consultant, make sure your team reviews your project’s payroll often and communicates any concerns to you. These reviews, including interviews with workers on site and coordination between the general and subcontractors, should begin even before construction commences. Insist your team has a plan in place to catch errors early and correct them with full disclosure to the state or federal agency overseeing prevailing wage compliance on the project. Make sure the team keeps impeccable records of its findings, reviews and payroll and compliance reports.
The Davis-Bacon Act sets forth pay and benefit rules that contractors must follow on projects which are funded by federal money. State prevailing wage regulations do the same for state-funded jobs and vary slightly depending upon the jurisdiction. And, because building projects that use both federal and state money usually are subject to more stringent requirements, the first step when bidding and completing infrastructure projects is to get your hands on the appropriate rules.
Still, most projects will be governed by similar prevailing wage laws. Here is a primer to keep you in compliance:
• Fully one-half of your workforce must be designated as journeymen and be paid at least the full prevailing rates as denoted on the project’s wage. Workers designated as laborers may be subject to lower wage rates. The other half of the workforce can be apprentices and receive a percentage of the full rate, depending upon their level of training. Only those enrolled in a qualified apprenticeship program can be designated as apprentices. “Helpers” have no place in federal projects. Check your state’s law to see if it allows the use of helpers at lower wage rates. Apprentices assigned to a job before or in favor of a journeyman must be paid at the journeyman rate. For instance, if you employ eight electricians on a site four must be journeymen and the other four can be apprentices. But if you assign two journeymen and six apprentices, the four “unpaired” apprentices must get the full journeyman rate.
• All workers on public works projects must be paid weekly. Certified payroll records must be turned in to the designated state or federal agency.
• The wage decision also will tell you the value of the fringe benefits you must provide workers on a prevailing wage project. ALL workers – apprentices, as well as journeymen – get the whole enchilada when it comes to these benefits.
If you don’t offer enough qualified benefits, or if an employee chooses not to participate in some benefit programs, you must pay the difference in cash to each employee. Your benefit program probably is qualified if it’s managed by a third party, but check with a consultant or your human resources professional to be sure. If you offer paid holidays and vacations, you can deduct the fair value of those benefits from the fringe package. Note that worker’s compensation is not considered a fringe benefit, and it cannot be deducted from the package.
• You’ll probably also have to pay into a qualified training program for every hour worked on the job. Some of these programs, notably those run by the Associated Builders and Contractors, apply the contributions to an employer’s account. The employer can draw on this account to pay for training for his apprentices. Others, such as those run by many states, pool the contributions from all contractors on public works projects and divide them among apprenticeship training programs in the state based on the number of apprentices they graduate.
• Projects in rural areas or located far from your base of operations may require you to pay workers extra to account for excess travel time to the jobsite or, in rare instances, to pay for temporary housing if commuting would be impractical.
The addition of Davis-Bacon and state prevailing wage regulation adds a few layers of complexity to the plunge into public works construction. But with a systematic approach to compliance, these hurdles can be easily overcome with minimal headaches. If you’re new to the public works arena, I suggest you consult a labor attorney and accountant to help set up your compliance assurance or contract with an established monitoring and compliance consultant or provider. Your local chapter of the Associated Builders and Contractors can offer tips and recommend sources of assistance.
Whether you keep your compliance team in house or use a consultant, make sure your team reviews your project’s payroll often and communicates any concerns to you. These reviews, including interviews with workers on site and coordination between the general and subcontractors, should begin even before construction commences. Insist your team has a plan in place to catch errors early and correct them with full disclosure to the state or federal agency overseeing prevailing wage compliance on the project. Make sure the team keeps impeccable records of its findings, reviews and payroll and compliance reports.
Labels: Commercial, Construction Industry, Industrial