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.