By Tom McDonough

Attorney, author, lecturer, and political activist Ralph Nader, best known for running for President five times, once said, “Turn on to politics, or politics will turn on you.”

That statement is especially true for the construction industry in this highly publicized election year. On federal, state, and county levels, elected officials and the legislation they enact affect how construction companies operate.

“Politics can affect our industry in so many ways, from economic concerns to regulations to issues regarding international security,” said Tim Worke, director of the Association of General Contractors’s (AGC) Highway and Transportation Division. The AGC is the largest and oldest national construction trade association in the United States, representing more than 32,000 firms.

“Take economic concerns,” he said, “in turbulent economic times like today, it is the policymakers on federal and state levels who address those problems. For example, the federal government has put into play an economic stimulus package to deal with the housing crisis.”

That package now provides tax cuts, but there is strong sentiment in the Congress that it also should fund infrastructure improvement programs, including in-country wastewater and drinking water facilities, military bases, and for federal, state, and local roadways and bridges. That would provide opportunities for job growth and provide incentives for contractors to expand capital expenditures.

On a state level, Minnesota’s Senate recently overrode the governor’s veto to enact a highway transportation bill. Jeff Ohman, Manager of the National Electrical Contractors Association (NECA) Minneapolis office, said that legislation, which pumps $6.6 billion in funding into road and bridge construction during the next 10 years, will be a boon for electrical contractors. “A lot of our members do a significant amount of work on roads here when it comes to traffic lighting and highway lighting and bridge work,” he said. “The electrical work alone for the new I-35 bridge, which is being built so quickly, is in the millions of dollars. Passage of the bill will provide electrical contractors with a significant amount of work on our infrastructure in the years to come.”

While the Minnesota bill has a huge upside, it also imposes a two-cent increase in the state’s gasoline tax, and a sales tax increase earmarked for more road and bridge repair. That means contractors will pay more for gas, and therefore will see increased operating costs.

“Still the benefits far outweigh the minuses,” Worke said. “The business community in Minnesota realized that the infrastructure is the economic engine for this state, and something had to be done to re-energize that engine.”

“Politics can affect our industry in so many ways, from economic concerns to regulations to issues regarding international security.”

~ Tim Worke, director of the Association of General Contractors’ Highway and Transportation Division

The lesson to be learned, however, is that if a contractor is not knowledgeable and on top of what’s happening at every level of government, it can hinder his or her company’s competitiveness, and its ability to uncover new business opportunities, wisely gauge projects, and know where to concentrate resources.

Dave Nielsen, Vice President of Parsons Electric, points to federal legislation before Congress that would extend the 2005’s Energy Policy Act as a good example of how keeping on top of legislative issues aided his company.

“The original act pushed alternative energy sources, such as ethanol,” he said. “It created a new market for us. In the last few years, we have worked on the construction of several ethanol plants in the Midwest, including one for NewMech Companies, Inc., based in St. Paul, Minnesota. We’ve helped construct a biomass plant for Fibrominn and a cogeneration facility at the Faribault Energy Park in Faribault, Minnesota. If the extension passes, the floodgates will be opened for a lot more of these types of projects.”

Eyes wide open

With the presidential election around the corner, construction associations such as NECA and AGC are tracking a number of hot-button issues at the federal level that will affect contractors. These include:

• Repeal of the Estate or Death Tax

“In 2001, Congress passed a $1.3 trillion tax cut package that included repeal of the estate or death tax,” Ohman said. “Estate tax rates have gradually decreased since 2002, and full repeal will occur in 2010. However, the reductions are scheduled to ‘sunset’ in 2011, meaning that estate tax will be reinstated at the full rate, unless legislation is passed to make the cuts permanent.”

How will this affect the construction industry? Because many construction companies are family-owned, they will be hit hard when the estate tax is reinstated. According to NECA, studies indicate that the average family business spends nearly $20,000 in legal fees, $12,000 in accounting, and approximately $11,000 for advisers to prepare for estate taxes. Many can spend as much as $30,000 on life insurance premiums to cover this tax burden.

“We are hearing a lot about this issue from our members, too,” Worke said. “It is a significant concern. They are looking to see how they will be able to grow their business and pass it on to the next generation. There is a real foreboding, since statistics say that only around 13 percent of all family-run businesses survive into the third generation.”

• Repeal of the Withholding Tax on Government Contracts

A new tax law requires federal, state, and local governments to withhold 3 percent from payments for goods and services as a guard against possible business tax evasion.

“This provision harms a multitude of businesses in an attempt to find a few tax delinquents,” Ohman said. “It forces companies to provide the federal government with what is, in effect, an interest-free loan on monies that may not even be due to them.”

“It critically affects a company’s cash flow, especially construction companies, where pretax profit margins rarely meet or exceed 3 percent,” he said. “And the cost to federal, state, and local governments to administer the program will be substantial, and the process complex if not impossible.”

• Immigration Reform

Construction companies historically have had a good record of abiding by immigration laws, such as documenting workers. But pending legislation seeks to readdress immigrant worker issues such as employee eligibility verification systems, wages, homeland security issues, effective enforcement measures, and penalties for contractors who violate the law.

“A heavy-handed approach by the government, regarding requirements and certifications that employers are abiding by the law will add time, cost, and burden to construction companies,” Worke said.

• Federal- and State-level Environmental Legislation

Much of this legislation grants tax benefits to companies making energy-efficient improvements to properties, as well as new and expanded credits for “green building” construction.

“Even the Minnesota state Legislature has just gone wild on this stuff,” Worke said. “Anything that’s green is on a greased skid. If you can take an issue and wrap it up in sustainable, green terminology, you’re good to go.

“Our members have been proactive about this, going to the legislature and saying ‘here is what we are doing. Here are the best practices we are incorporating into our business models,’ ” he said.

• Multi-employer Pension Plan Reform

The legislation would seek funding relief and operational policy reforms in laws covering multi-employer defined benefit pension plans, ensuring that such plans remain economically healthy for all involved — contributory employers, plan beneficiaries, and the federal government.

Taking action

What should a contractor do to stay on top of the political landscape? “My advice is to get involved and stay involved,” Ohman said. “On the federal level, Congress moves very slowly in certain areas, like tax issues and compliance issues. It’s our experience that it takes five or six year to get our points across on how legislation impacts the construction business.”

AGC’s Worke agrees. “Everyone should stay abreast of what is happening on a policy-making level, because it absolutely will affect their bottom line, their daily life, the workplace environment, and everything that goes on,” he said.

How do you stay involved? “Pick up the phone and call your state or federal congressman or senator, and let them know your position on a piece of legislation,” Ohman said. “Follow that up with a faxed letter.”

Worke said one of the best ways contractors can stay abreast of political issues, especially if they don’t have the time to do it themselves, is to work through trade associations.

“It is our job to filter out legislative concerns salient to the industry and provide value-added information back to members,” he said. “Your trade association can be a sort of a one-stop shopping place for members to understand the regulatory and legislative environments.”

That is essentially what Parsons Electric does. “We’re involved with the Association of General Contractors legislative committee,” Nielsen said. “We actively participate in NECA’s Political Action Committee, and we contribute to different political action organizations to help fund construction industry initiatives.”

“The world of policy development and politics belongs to the people who show up,” Worke said. “If you don’t participate, you get what you deserve. You can’t expect an outcome in your favor if you don’t participate.”