Ways And Means Considering Modest Tax Relief For Smaller Contractors

Republican Congressman Walter Herger (R-CA), with cosponsors Shelley Berkley (D-NV) and David McKinley (R-WV), has introduced H.R. 1993, entitled American Job Builders Tax Reform Act, to provide some modest tax deferral for smaller construction contractors in the years beginning with calendar 2011. Yes, if the bill passes, it will apply for this calendar year’s taxes.

The legislation would permit construction businesses with annual gross revenues of up to $40 million to use the completed contract method of tax accounting for profits. Presently, only those contractors with annual gross revenues of $10 million or less are permitted to use completed contract tax accounting, while those with gross revenues over $10 million must use the percentage of completion method of tax accounting. H.R. 1993 would also increase the $40 million threshold each year to keep pace with inflation, according to the federal COLA.

The completed contract method of tax accounting permits deferral of income taxation on contractor profits until all work on a project is completed, and the business can accurately determine the amount of profit on the project, if any. Under the percentage of completion method, a construction business must pay taxes on the percentage of fee earned on all contracts in its tax year, even though the duration of some projects may make it impossible to determine whether or not a particular project will ultimately produce any profit at all.

H.R. 1993 has been referred to Congressman Dave Camp’s House Ways and Means Committee, where it will be considered by the Revenue Measures Subcommittee chaired by Representative Pat Tiberi (R-OH). Other members of the Revenue Measures Subcommittee include Representatives Rich Berg (R-ND), Shelley Berkley (D-NV), Charles Boustony (R-LA) John B. Larson (D-CT), Kenny Marchant (R-TX), Richard E. Neal (D-MA), Erik Paulsen (R-MD), Peter Roskam (R-IL), and Mike Thompson (D-CA).

If this bill will be helpful to your business, now would be the time to write to members of the subcommittee and let them know you support the legislation.

Would A Chicago Casino Bring Construction Jobs?

Short answer: Maybe.

To begin with, the Chicago Casino Development Authority created by the bill now on Governor Quinn’s desk awaiting signature would have to decide whether it wants a land based casino or a riverboat. Chicago has no shipyard, so if the Authority opts for a floating mecca of gaming, the only construction jobs for Chicagoans would be those involved in the land side ancillary facilities like restaurants, taverns and a parking garage. This would cut the local casino construction workforce by about half.

If the Authority chooses a land based facility, the question is how construction of such a casino would be financed, given the cash strapped situation of city government and local taxpayers at the present moment. It would be possible for the Authority to attract private capital to the project by requesting proposals for private construction of the physical facilities, which would then be leased to the Authority for operation of the gaming establishment. Private investors would recover their capital investment with agreed upon earnings through lease payments from the Authority, while the Authority would not have to borrow in order to finance the construction. The land based casino would become operational faster, since private developers would be more free to employ an accelerated design/build program than the Authority, constrained by “lowest responsible bidder” requirements of public construction laws, could ever do.

Given that most of the sites proposed for development of the Chicago casino are on property already owned by others, it would be easy enough for the Authority to specify the details of casino construction through a leasehold work letter like the ones office building or store tenants use to set out the requirements for building out the space they will occupy in a leased building or space. The Authority would retain control of the appearance and layout of the finished product, while the private owner would finance and contract for construction of the facility. The work letter could even require the Authority’s landlord to adhere to City mandated requirements for minority and women participation, and use of local tradespeople on the project.

If Governor Quinn signs the bill, Mayor Emmanuel will appoint the members of the Authority board, and I look for the Board to do everything possible to attract private capital to construction of the new casino – on land if there is any political interest in keeping the construction dollars in the city rather than in a shipyard in another state. The same sort of legal arrangements used when our generous local philanthropists donated a quarter billion dollars to enhancement of Millennium Park can both attract private investment to a Chicago casino project, and avoid the delays inherent in public bidding and contracting for actual construction of the facility. Rahm is a very smart Mayor, and the precedents are all in place. I’m looking for a land based casino built with private funds, and leased by the Authority. Hammers could be swinging within a year if our political leaders act quickly.

Republican Union Busting Goes Federal

The Republican sponsored push for labor union busting legislation, which has been steadily creeping eastward through state capitals from Madison through Indianapolis to Columbus, has finally arrived at the U. S. Capitol Building in Washington, D.C. Introduced by North Carolina Representative Virginia Foxx, and cosponsored by Representatives James Lankford of Oklahoma, Jason Chaffetz of Utah, Ron Paul of Texas and Lynn Westmoreland of Georgia, H.R. 1846 would repeal the Davis Bacon Act’s prevailing wage requirements on any construction contract paid for in whole or in part with Federal Highway Trust Fund money, if the invitation for bids on the project is issued after the effective date of the legislation.

The one page repealer bill is now in the House Committee on Transportation and Infrastructure and the House Committee on Education and the Workforce. If your Representative is on the sponsorship list for H.R. 1846, or is serving on either Committee to which the bill has been referred, now is the time to write and let them know your position on this anti-labor legislation.

Will Federal Highway Construction Dollars Ever Come Back?

One of the many political issues in Congress which presently suffers from a dearth of press coverage amid the toxic debates over Medicare cuts, tax increases, budget slashing and the deficit ceiling, is the question of long term reauthorization of the Federal Highway Trust Fund. However, work on the Highway Trust Fund issue does continue in Washington. Joseph Kile, CBO’s Assistant Director for Microeconomic Studies, testified recently before Max Baucus’ Senate Committee on Finance about the status of the Highway Trust Fund. The picture Kile painted was not a particularly pretty one.

In his Finance Committee testimony, Kile outlined four potential scenarios for long term Highway Trust Fund reauthorization legislation: 1) funding highway projects for which benefits exceed costs; 2) spending enough to maintain highway performance; 3) maintaining current spending levels adjusted for inflation; or 4) limiting spending to revenues raised by existing motor fuel taxes.

Option 1) Funding projects where benefits exceed costs.

This option would involve significant increases from current spending levels, estimated at $209 billion per year from federal, state and local governments. If the current proportion of federal funding is maintained, this would mean Federal Highway Trust Fund annual expenditures would increase from the current level of $45 billion per year up to $94 billion per year. A somewhat less generous approach would involve setting a minimum threshold for the cost/benefit ratio. If federal funding were restricted to those projects for which benefits exceed costs by at least 20%, total government funding from federal state and local governments would drop to $188 billion per year, with the Federal Highway Trust Fund share decreasing to $84.5 billion per year. If the funding threshold were increased to 150% of costs, project funding would drop to $165 billion per year, and the federal share would drop to $74.2 billion per year.

Option 2) Spending at levels to maintain current highway performance.

Spending levels designed to merely preserve current average travel delays and pavement quality on federal highways would require all levels of government to spend a combined $127 billion per year, with the Federal Highway Trust Fund share approximating $57 billion, an increase of $12 billion above current Trust Fund spending levels.

Option 3) Maintaining current spending levels adjusted for inflation.

Current Highway Trust Fund spending levels of $45 billion per year, adjusted for inflation in construction costs, will exceed the revenues produced by current federal motor fuel taxes by $2.5 billion in fiscal 2011, and by $3.2 billion in 2012. Since the Highway Trust Fund is not permitted to go into a deficit position, even the modest option of maintaining current spending levels will require either annual make up appropriations from general revenues, an increase in federal motor fuel taxes, or additional user fees in the form of tolls or vehicle miles traveled taxes.

Option 4) Limiting spending to revenue from existing motor fuel taxes.

Limiting Highway Trust Fund spending to an amount equal to revenues produced by existing federal motor fuel taxes would result in an immediate reduction in federal highway expenditures from the current $45 billion per year down to about $30 billion per year. Funding at this level would increase deferred road maintenance and reduce new road and transit construction, resulting in accelerated crumbling of an already overstressed national transportation infrastructure.

Which Way Is Congress Headed?

Even if the Republican dominated House of Representatives would pass significant motor fuel tax increases together with new tolls or vehicle miles traveled taxes, the nearly universal inability of state and local governments to raise revenues to produce the required additional matching funds makes it very unlikely that we will see the federal transportation dollars represented by either option 1) or option 2) enacted in a long term Highway Trust Fund reauthorization measure in the foreseeable future. For the same reason, option 3) is less than likely since it would also require more state and local matching appropriations, though not quite at the astronomical levels represented by options 1) and 2). Even should a vehicle miles traveled tax be enacted to supplement revenue from motor fuel levies, the long lead time for adoption of the in vehicle metering technology required to assess and collect the new tax, together with the anticipated privacy objections to letting the federal government have a detailed GPS record of everyone’s minute by minute vehicle travel movements, will likely delay options 1), 2), and 3) for many years to come.

This makes option 4), an immediate one third reduction in Federal Highway Trust Fund expenditures, seem to be the most likely result in any long term Highway Trust Fund reauthorization measure coming out of the 112th Congress. Of course, the fifth alternative, unmentioned in Kile’s Committee testimony, is that Congress continues to limp along with quarterly or semi-annual highway trust fund reauthorizations, as it has for the last few years, awaiting a game changing House election for the enactment of any long term reauthorization legislation. So, will federal highway construction dollars ever come back? As I see it, not any time soon.

Congress Takes A Machete To The Construction Industry

Voters, politicians and pundits from both ends of the political spectrum are busy praising the fiscal year 2011 continuing resolution agreed to in Congress last week to avoid a shutdown of the federal government. If you ever wore a hard hat, you should be weeping and gnashing your teeth!

The hastily slapped together last second agreement slashed $28 billion from funding levels for fiscal year 2010. Over $17.1 billion of those cuts come directly at the expense of the construction segment of the American economy. This bill is a construction job killer as deadly as though the Congressional intent was to permanently demobilize that entire sector of American productivity. Now that the detailed list of $28 billion in cuts has been released, it is clear that $17,187,000,000.00, or 61.38%, are at the expense of the construction industry.


It seems there was not a single staffer in the legislative or the executive branches of our national government in Washington who was assigned to look at the issue of the impact this politically expedient compromise would have on various facets of either the American economy or the recovery which is still in its infancy. While the focus of the conversation was on politically divisive “issue riders” which nearly brought Washington D. C. to a grinding halt, and whether the burden of federal debt reduction should be fastened onto the shoulders of the poor, who fear program reductions, or the rich, who fear tax increases, nobody was looking at the impact this bill will have on the unemployed middle class construction worker, whose hopes of returning to work any time soon are dashed month after month by the folks wearing neckties in the halls of Congress, who were assured of a paycheck even had the government shutdown materialized.

Whatever your political leanings, it would be difficult to fashion a cogent argument for placing well over half the burden of federal budget cuts on a single segment of American industry which represents only about 5% of our domestic economy.

Biggert Continues Her Assault On The Construction Industry

Continuing her direct attack against any potential for recovery of new housing construction in America any time soon, 13th District Republican Representative Judy Biggert succeeded this morning in securing House passage of the fourth in a series of separate bills she cosponsored, terminating programs which provide relief to homeowners plagued by the economic crisis. Biggert is a cosponsor of HR 830, the FHA Refinance Program Termination Act, and HR 836, the Emergency Mortgage Relief Termination Act, passed by the House and sent to the Senate Banking Committee March 14, as well as HR 861, the Neighborhood Stabilization Program Termination Act, passed in the House March 17 and sent to the Senate Banking Committee. This morning the House also passed HR 839, the Home Affordable Modification Program Termination Act, cosponsored by Biggert, which will go to the same Senate Banking Committee.

Under Biggert’s leadership, the House has now succeeded in pushing through bills to completely gut all the programs in the Obama Administration stimulus legislation which gave some hope of stabilizing the tottering housing market, and stemming the bleeding in the housing start statistics so critical to recovery of jobs and activity in the construction industry. The fate of these critical programs is now in the hands of the 10 Republican, 12 Democrat Senate Committee on Banking, Housing and Urban Affairs. The Democratic members are Chairman Tim Johnson of South Dakota, and Senators Jack Reed of Rhode Island, Charles Schumer of New York, Robert Mendez of New Jersey, Daniel Akaka of Hawaii, Sherrod Brown of Ohio, Jon Tester of Montana, Herb Kohl of Wisconsin, Mark Warner of Virginia, Jeff Merkley of Oregon, Michael Bennet of Colorado and Kay Hagan of North Carolina. Republicans serving on the committee include Ranking Member Richard Shelby of Alabama, and Senators Mark Crapo of Idaho, Bob Corker of Tennessee, Jim DeMint of South Carolina, David Vitter of Louisiana, Mike Johanns of Nebraska, Patrick Tooney of Pennsylvania, Mark Kirk of Illinois, Jerry Moran of Kansas, and Roger Wicker of Mississippi.

While pundits predict all four bills will die in the Senate, or be vetoed by President Obama in the unlikely event they do pass, it is incumbent on every voter whose economic progress depends in any way on recovery of the construction segment of our economy to get in touch with the members of the Senate Banking Committee and let them know how important it is to construction companies and construction workers to see that this destructive legislation never reaches the Senate floor.

U. S. House Deals Construction A One/Two Punch

Last week the U. S. House of Representatives passed, and sent across the capitol to the Senate Committee on Banking, Housing and Urban Affairs, two unheralded pieces of legislation which represent direct attacks on the potential for economic recovery in the construction industry and the U. S. housing market: HR 830, passed March 14, would terminate the FHA Refinance Program; and HR 861, passed March 17, would terminate the Neighborhood Stabilization Program. The two programs on the Republican Party death list were part of the stimulus package of legislation aimed at assisting homeowners, whose house values fell below the principal balances on their home mortgages, refinance their loans, and assisting neighborhoods with large numbers of foreclosed homes avoid the urban blight associated with a situation where many homes in the same area stand vacant and unmaintained.

The fate of these two programs is now in the hands of the 10 Republican, 12 Democrat Senate Committee. The Democratic members are Chairman Tim Johnson of South Dakota, and Senators Jack Reed of Rhode Island, Charles Schumer of New York, Robert Mendez of New Jersey, Daniel Akaka of Hawaii, Sherrod Brown of Ohio, Jon Tester of Montana, Herb Kohl of Wisconsin, Mark Warner of Virginia, Jeff Merkley of Oregon, Michael Bennet of Colorado and Kay Hagan of North Carolina. Republicans serving on the committee include Ranking Member Richard Shelby of Alabama, and Senators Mark Crapo of Idaho, Bob Corker of Tennessee, Jim DeMint of South Carolina, David Vitter of Louisiana, Mike Johanns of Nebraska, Patrick Tooney of Pennsylvania, Mark Kirk of Illinois, Jerry Moran of Kansas, and Roger Wicker of Mississippi.

Termination of these two federal programs will be like a knee to the groin of an already prostrate residential construction industry in the United States. Without the economic support from the federal dollars these two significant programs provide, housing starts, already on a steep slalom down the mountain, will just turn their tips into the fall line. Seems like the Republican Senators and Congressmen favoring these bills, who already own their homes, want to destroy the American Dream for anyone in the middle class who still rents housing. If your business depends on housing construction for any part of its revenue, you should write your elected representatives on the Senate Banking Committee and point out the folly passage of either one of these proposed laws would represent.