IRS Issues New Guidance On “Beginning Of Construction”

Real estate developers and property owners seeking to take advantage of Section 45 production tax credits and Section 48 investment tax credits under the U. S. Internal Revenue Code need to be mindful of the date fixed under the IRS rules as the “beginning of construction.” IRS Notice 2017-4, issued December 16, 2016, clarifies the calculation of the date when construction begins. Two tests may be used to define “beginning of construction:” 1) starting physical work of a significant nature, and 2) paying or incurring 5% or more of the total cost of the facility under construction.

However, “beginning of construction” under either test depends on construction work proceeding “continuously” from the start date. Earlier IRS guidance defined “continuous” as putting the facility in service during a calendar year no more than four calendar years after the calendar year of beginning construction. Notice 2017-4 extends the continuity deadline to December 31, 2018 for all construction begun before June 6, 2016, whether or not the project would otherwise meet the four calendar year test.

Notice 2017-4 also refines the determination of the 5% of construction cost start date when the project involves retrofitting of an existing facility. If the fair market value of used property in the retrofitted facility does not exceed 20% of the total market value of the retrofitted facility when complete, the “cost of construction” will include all costs properly included in the depreciable basis of the retrofitted facility.

Developers and owners with projects currently under construction who expect to take advantage of Section 45 or Section 48 credits, or both, should review their project schedules and expenditures to make certain they are in compliance with the new guidance.

McHenry County Board To Cut Committees, Meeting Schedule

McHenry County Board’s Temporary Rules Committee, organized by the Board’s first popularly elected Chairman, Jack Franks, has voted to recommend reducing the number of Board committees from 11 to 7, and to cut the meeting schedule from two voting meetings per month to one. In ongoing efforts to improve Board efficiency, the TRC also recommends permitting substitution of board members for absent committee members, making it easier to assure attendance of a quorum at committee meetings. Lack of quorum has created delays in Board action on agenda items on multiple occasions in the recent past.

Illinois Tollway Budgets For Western Access To O’Hare

Illinois Toll Highway Authority’s $1.7 billion 2017 budget, passed December 15, provides $374.5 million for continued construction of the I490 tollway and Illinois 390 O’Hare access roadway flyover above the Canadian Pacific freight yards on the west side of the airport property – a project opposed by the railroad and the subject of ongoing litigation between CP and the Tollway. The Tollway filed the lawsuit because CP officials refused even to discuss a western access route that would include five ramps above CP’s rail right of way. Total cost of building the proposed toll beltway completely around O’Hare is predicted to be $3.4 billion, and is in support of the City of Chicago’s $13.3 billion O’Hare Modernization Program.

Chicago, IDOT Seeking Federal Rail Construction Grants

In separate but related moves, Chicago’s City Council and IDOT are seeking federal funding for rail construction projects intended to speed up CTA light rail commuting and untangle south side rail conflicts among Amtrak freight traffic and METRA commuter lines. The City Council has rushed through a TIF district between North Avenue and Devon Avenue straddling the CTA’s red and purple line tracks. The TIF district is intended to generate $851 million in revenue dedicated to improving CTA tracks, to be used to match a federal $1.1 billion grand the City has applied for during the Obama administration’s waning days.

IDOT is seeking a federal grant of $160 million to eliminate passenger/freight rail conflicts in the 75^th Street corridor near the Dan Ryan Expressway. Among other improvements, IDOT’s proposed construction would allow Metra SouthWest Service commuter trains to use the LaSalle Street station as the downtown terminal, reducing conflict and overcrowding with Amtrak and BN passengers at Union Station. IDOT thinks it can get its project approved even if consideration is delayed until after the Trump inauguration, but Chicago aldermen rushed their TIF designation through because they believe Obama’s DOT may approve their grant application, while anticipating Trump administration resistance to funding inner city transit construction.

        

Will Labor Secretary Designee Pudzer Push Equal Pay Rights?

President elect Trump’s daughter Ivanka repeatedly promised during the Trump campaign to fight for equal pay rights for women in the labor force. The Obama administration’s EEOC has promulgated a new reporting requirement for all businesses with over 100 employees, expanding earnings and hours worked reporting requirements from a 200 cell report to a 4,000 cell report due on the third quarter EEOC snapshot date. Trump’s Labor Secretary Designee, fast food executive Andrew Pudzer, on the other hand, is pledged to “save small businesses from the crushing burdens of unnecessary regulations that are stunting job growth and suppressing wages.”

According to Senate Minority Leader Charles Schumer, Pudzer is “someone who opposes an increase in the minimum wage, opposes the overtime rule that would raise middle class wages, and whose businesses have repeatedly violated labor laws,” and that Trump’s naming Pudzer to the Labor Department post is “the surest sign yet that the next cabi9net will be looking out for the billionaires and special interests, instead of America’s working class.” It will be interesting to see whether the Obama administrations third quarter 2017 wage and hour reporting requirement will survive, because of Ivanka’s influence, or die in the Pudzer DOL regulatory environment.

Infrastructure Needs To Challenge Secretary Designee Chao

Shepherding President Elect Trump’s promised ten year $1 trillion infrastructure construction program through a deficit shy and spending averse Congress will be the biggest challenge faces by Trump’s Transportation Secretary Designee Elaine Chao, wife of Senate Majority Leader Mitch McConnell. While Chao’s past experiences as Secretary of Labor and Deputy Secretary of Transportation, as well as her service on the boards of directors of construction giants Parsons and Vulcan Materials give her a depth of understanding of infrastructure and politics not often combined in the cabinet job she is designated to hold, bridging the gap between anticipated federal transportation revenue streams and the projected cost of the nation’s infrastructure construction and repair needs will likely be her greatest obstacle.

According to a recent joint study by the American Association of State Transportation Officials and the American Association of Port Authorities, American freight infrastructure alone needs investment of nearly $258 billion. Getting Congressional approval of the motor fuel tax increases, proposed $137 billion in tax credits to spur private-public partnership investment in toll roads and other revenue generating projects, in addition to the $10.3 billion Congress just approved for water resources infrastructure, and the continuing resolution freezing Highway Trust fund spending at 2016 levels could be an insurmountable hurdle, even for Chao.

House Democratic leaders, including House Transportation Committee ranking member Peter DeFazio (D-Ore.), have been quick to point out the schizophrenic nature of the Congressional Republican response to President Elect Trump’s promises of substantially larger, and construction job cresting, infrastructure investments by the federal government: “Looks like House Republicans missed the memo from President Elect Trump on boosting transportation infrastructure investment. Instead of carrying out the promise of rebuilding our crumbling roads, bridges and transit systems,” DeFazio said, “the Continuing Resolution ignores the FAST Act transportation funding levels that were approved a year ago, resulting in a $2.4 billion reduction in transportation investment, which will impact next Spring’s construction season. … House Republicans like to talk about this ‘big league’ trillion dollar transportation plan they supposedly want to pass. Cuts like these make you question whether they are serious about it.”

The negative impact of federal appropriations significantly below the levels promised in last year’s FAST Act is already being felt in state capitals like Topeka, where Kansas DOT put 10 more highway construction projects on hold, in addition to the 24 projects dropped from its bidding schedule last month due to increasing budget shortfalls.

It looks like deferred maintenance could be a continuing headache for Chao once her expected quick Senate confirmation becomes a reality.

Trump Names Elaine Chao As Transportation Secretary Appointee

President Elect Trump has named Elaine Chao, former Deputy Secretary of Transportation and Secretary of Labor under earlier Republican administrations, and wife of Senate Majority Leader Mitch McConnell, as his choice to head the Trump administration USDOT. Senator McConnell’s immediate reaction to the appointment and forthcoming Senate confirmation vote was “No, I’m not going to recuse myself.”

Associated General Contractors of America and American Road and Transportation Builders Association both applauded the selection. House Transportation Chairman Bill Schuster and USDOT Secretary Anthony Foxx also joined the chorus of praise for Trump’s choice. Trump’s announcement charged Chao with carrying out “our mission to rebuild our infrastructure in a fiscally responsible manner.” No explanation was forthcoming regarding the discrepancy between Trump’s campaign promise of $1 trillion for infrastructure investment over the next ten years, and his current transition website posting slashing that figure to a mere $550 billion.

Pence, Trump and United Technologies Keep Carrier Jobs In Indiana

Without releasing the details of the arrangement, the Trump transition team has announced, and Carrier has confirmed, an agreement that would preserve in Indiana 1,000 of the jobs Carrier earlier proposed moving to Mexico. Reports indicate that the State of Indiana has offered new incentives to Carrier to keep 1,000 jobs in the state, and that Trump pressured Carrier’s parent United Technologies with threats of losing a significant portion of its $5.6 billion in annual defense contracting revenue if Carrier’s proposed move to Mexico was put into effect.

Missouri Infrastructure Budget Faces Deep Pothole In Motor Fuel Tax Shortfall

Illinois is not the only state where increasing vehicle fuel economy and tax averse state legislators are combining to leave secondary roads and bridges in deplorable condition. Missouri road fund revenue has plummeted from $1.3 billion in 2009 to only $800 million anticipated in 2017, leaving 30% of the state’s less traveled roads in poor condition, and 22% of the state’s bridges in poor repair or weight restricted.

A particular sore spot is the need to rebuild 200 miles of interstate between St. Louis and Kansas City, at an estimated cost of $2 billion to $4 billion. Missouri’s motor fuel tax rate of $0.17/gallon has not gone up in 20 years, and voters are opposed to any increase at present. Combined with more miles per gallon from modern cars and trucks, the revenue decline for road and bridge maintenance has been dramatic. Last year the Missouri House failed to even take up a bill to increase the motor fuel tax rate.

Declining revenues have already forced MDOT to cut the highway maintenance workforce by 20%, close repair shops and sell off highway maintenance equipment, shifting $100 million to bandage the highway repair budget. Legislators have even suggested transferring many miles of back roads from state to county responsibility, but such a move would undoubtedly increase maintenance costs per mile of road by denying county and local governments the advantages of statewide quantity purchases of paving materials.

No one has yet figured out how to build and repair more miles of road with fewer dollars.

Texas Federal Court Blocks Mandatory Overtime for High Salaried Workers

The U. S. District Court for the Eastern District of Texas has issued a nationwide injunction against enforcement of the Obama administration’s rule, set to go into effect December 1, that would mandated overtime pay for salaried employees earning less than $47,426.00 annually, as opposed to the current overtime standard of $23,660.00. The court ruled that the Department of Labor regulation was unauthorized by the Fair Labor Standards Act because it substituted salary level alone for consideration of employment duties in determining whether salaried employees are or are not hourly workers.

The court also held the Department of Labor lacks authority to insert automatic upward salary adjustments in the new rule, because the automatic adjustment provision eliminates the notice and comment period required by the Act before implementing new regulations.

Twenty state governments and fifty business organizations brought the lawsuit challenging the rule. It seems highly unlikely that the Trump administration Department of Labor will pursue efforts to enforce or revise the rule after inauguration of the new President in January.

Countervailing Duties May Push Up Prices for Softwood Construction Lumber

A November 25 petition by U. S. softwood lumber producers Weyerhaeuser and Potlatch, together with the Carpenters Industrial Council, seeks imposition of countervailing duties on Canadian softwood imported into the U. S. following expiration of the one year standstill agreement between Canadian and U. S. trade officials. The U. S. companies and the carpenter’s union assert that Canadian softwoods are being sold in the U. S. below cost. Canada’s BC Lumber Trade Council opposes the petition. Council President Susan Yukovich says, “The claims levelled by the U. S. lumber lobby are based on unsubstantiated arguments.”

Negotiations between the Obama administration and Canada’s Trudeau government have failed to produce a new bilateral trade agreement after a year of discussion. It seems unlikely that an incoming Trump administration, with its protectionist sentiments, would take any action to prevent softwood lumber price increases which will follow imposition of the countervailing duties proposed by U. S. lumber interests. Look for American housing and smaller commercial construction prices to go up as a result, in the near future.

Will “Buy American” Infrastructure Legislation Launch US/Canada Trade War?

President Elect Trump’s sentiment favoring the preservation and repatriation of U. S. manufacturing jobs at all costs, coupled with growing protectionist sentiment among Democratic leaders in Congress, could result in U. S. motorists and taxpayers getting far less infrastructure actually built under any 10 year federal infrastructure legislation likely to be introduced during a Trump administration’s first term. Ohio Congressman and minority leader candidate Tim Ryan is already a chief cheerleader for the expected “Buy American” riders Congress is likely to add to any Trump administration infrastructure proposals. “Let’s have Buy American provisions in there, so it’s American-made steel and American-made concrete,” Ryan has announced.

Former George W. Bush administration trade representative Susan Schwab says the addition of buy American riders to an infrastructure bill will end up with the federal government spending an extra $900,000.00 for every U. S. steel industry job saved, instead of leaving motor fuel tax revenues in the Highway Trust Fund to build more roads and bridges using American construction workers. Buy American steel provisions hurt U. S. trade relations with Canada under the Obama administration, and the addition of concrete to such legislation would further increase material prices by limiting imports of Portland cement from Mexican and South American suppliers who are major exporters to the U. S. construction market.

Toronto based IPEX Management Inc., a steel product maker with plants in both Canada and the U. S., cites difficulties arising at U. S. military and other construction sites under the Obama buy American restrictions. IPEX’s Veso Sobot says multiple projects have suffered schedule delays and increased costs as a result, hurting workers on both sides of the U. S./Canadian border. “Canada is joined at the hip with America. We get 95% of our raw materials from the U. S. We have a lot of American suppliers. We have a lot of American customers. We share so many things,” Sobot said.

It remains to be seen what specific materials may be included in buy American riders to a Trump administration infrastructure bill, and what the impact on material costs for private construction projects in this country might be.

Federal Court Blocks Enforcement of Labor Advice Disclosure Rule

November 16 U. S. District Judge Sam R. Cummings of the Northern District of Texas in Lubbock issued a permanent injunction blocking the U. S. Department of Labor from enforcing its new rule promulgated March 24, which would have required lawyers and other consultants providing advice to employers regarding opposition to union representation of their employees to publicly disclose their involvement. Judge Cummings ruled that the regulation was an unconstitutional infringement of the employers’ first amendment right to hire and consult with lawyers about labor law matters.

The American Bar Association and the National Federation of Independent Businesses had opposed enforcement of the rule. The ABA specifically objected that the Labor Department rule was interfering with attorney-client privilege. Judge Cummings rulings were issued in the case of National Federation of Independent Businesses v. Perez,  5:16–CV-066-C.

Infrastructure Construction in a Trump Administration

Rosy predictions of doubled federal support for infrastructure construction across our nation under President Elect Donald Trump are fading quickly, according to a recent post on Trump’s transition website. Despite predictions of Trump supporters Wilbur Ross and Peter Navarro that his public private partnership based infrastructure funding and tax plan “could help finance up to a trillion dollars’ worth of projects over a ten year period,” the most recent transportation and infrastructure post on the official Trump administration transition website, https://www.greatagain.gov/policy/transportation-infrastructure.html proposes federal investment of only $550 billion over the ten year period.

Rebar Prices Headed Up After USITC Ruling

The prices of reinforcing steel for highway and other concrete construction projects will likely head up in the new year, following the U. S. International Trade Commission’s November 3 ruling that imports from Japan, Taiwan and Turkey are being dumped in the U. S. by these foreign steel producers. According to the ruling, the $854.1 million in foreign rebar imports represent almost 20% of U. S. reinforcing steel consumption.

Expect countervailing import duties on foreign rebar to be imposed early next year, leading to increasing prices on both foreign and domestic reinforcing steel products in February or March 2017.

PNC Bank Lends $51.3 Million for South Loop Apartment Tower

PNC Bank is providing the $51.3 million construction loan for construction of a $70 million, 26 story, 320 unit apartment building at 1136 Douth Wabash in the South Loop neighborhood. PNC says it is comfortable making the loan after the developer paid off a $70 million construction loan earlier this year on the 351 unit Arkadia Tower apartment complex in Greektown. The Wabash project is being built by Lendlease.

Federal Court Injunction Blocks Enforcement of “Fair Pay and Safe Workplace” Regulation

Texas federal judge Marcia Crone has issued a preliminary injunction blocking enforcement of the Obama administration’s labor regulation which would have required contractors, and eventually subcontractors, to publicly disclose alleged violations of 14 federal labor, safety, health and employment rules, and related state laws, before seeking federal contracts worth more than $500,000.00 after April 25, 2017. According to Judge Crone’s opinion “The public disclosure and disqualification requirements being imposed on federal contractors and subcontractors are nowhere found in or authorized by the statute on which [the rule and Labor Department guidance] relies.”

The lawsuit challenging the rule was brought by the Associated Builders and Contractors and the National Association of Security Companies, while the rule was supported by the Laborers International Union of North America.

Merchandise Mart Lands Caterpillar “Dirt & Digital” Lab Facility

Peoria based Caterpillar, Inc. has announced a 5,000 square foot, 45 employee facility in the Merchandise Mart to expand its Chicago area presence working with local universities and technology companies to develop digital applications for use in Caterpillar construction equipment, such as real time updates on equipment operator fatigue through equipment cap facial recognition systems, according to Caterpillar Director of Guest and Community Relations Henry Vicary.

“Our ‘Dirt & Digital’ labs are the perfect way for us t showcase that Caterpillar shares Chicago Idea’s overall vision, keenly focused on technology, innovation and a future that will transform the world,” Vicary said.

Chicago Public Schools Announce $1 Billion in Borrowing, Despite Junk Bond Status

Despite Moody’s Investor Service September downgrading of CPS bond issues to junk status, the Chicago Board of Education has announced it intends to market an additional $1 Billion in bonds to finance new school construction, renovation projects, and equipment purchases. The Chicago City council has approved setting aside a pool of property tax revenues to finance repayment of these bonds.

Major Fine for Omega Demolition in Worker Death

OSHA has issued a fine of $152,433.00 against Elgin based Omega Demolition for safety violations leading to the death of Vincente Santoyo, an Omega employee, when a beam collapsed on him while he was cutting bracing during demolition of a bridge over the Jane Addams Tollway to complete widening of the roadway. Omega has had nine other OSHA safety citations since 2006, and has been placed in OSHA’s Severe Violator Enforcement Program. Laborer’s local 225 said that Santoyo had worked for over 20 years in the Chicago area construction industry.

As a result of the deadly incident, Tollway officials removed Omega from the project, and barred the demolition contractor from any further Tollway work. Judlau Contracting, the general contractor, also had its project manager and an engineering supervisor removed from the project and barred from future Tollway work.