Month: November 2020

When Shared Services Make Sense for New York Municipal Governments, and How to Build Foundations for Success

Local municipalities in New York searching for ways to save money in the face of the ongoing COVID-19 pandemic should take a hard look at whether sharing services with other local governments is feasible.

In 2017 New York launched its Shared Services Initiative, asking counties to convene shared services panels made up of city and village mayors and town supervisors, with school and special district officials if they wish.

The idea was to identify where sharing and coordination will create benefits to the parties involved and save money for taxpayers. The program also offers state matching funds for shared-services projects.

When does sharing make sense for a government?

The first step is getting a solid handle on costs and determining who might be a logical partner in sharing. There are political considerations, and employees may worry about losing jobs or responsibility, and residents may worry about the quality of service. If the county is a potential partner, some might worry about a county takeover.

Municipalities that try to consolidate police forces for example, often run into concerns of a loss of the local “cop-on-the-beat” touch of a small village department. However, sometimes those mergers do go through, as they did years ago in Warwick and Saugerties.

There are smaller ways to work together, too: The Town of Wappinger built an emergency services building which houses the local ambulance corps, and New York State Police rents space there for its zone headquarters. The troopers get a barracks; the Town gets police presence.

Successful sharing starts with drawing up a plan that creates a benefit for all partners. Good research takes the current services and costs, and projects the future needs for the service and costs to provide it. This is a process that involves looking forward to the long-term, not just to the past.

Once the government partners have a solid plan with research showing the benefits, they’ll need buy-in from officials who would have to approve the deals, and from residents who pay the taxes. To get that requires good communication of the process and the plan, and a clear explanation of how sharing services will benefit the communities involved.

Some counties jumped into shared services with gusto. In 2019, for example, Dutchess County worked up four projects projected for $2.3 million in savings for 2020 and going forward. The lion’s share of that, $1.4 million, comes from a joint drug task force combining the resources of the county’s sheriff’s office and district attorney, and police departments from the cities of Poughkeepsie and Beacon and the towns of Poughkeepsie, Hyde Park and East Fishkill.

Shared police dispatching by Hyde Park, the City of Poughkeepsie and the county account for another $769,000 in savings.

In Ulster County, a joint fire protection project between the Village and Town will save a projected $1.325 million, contracting the New Paltz Fire District to cover the Town, with the Town contributing toward a new firehouse to replace the old, obsolete sub-station building.

Other shared ventures in Ulster include multiple towns in a joint stormwater management education and outreach program, a distributed generation plan to reduce greenhouse gas emissions, and a countywide plan sharing highway and transportation equipment, personnel, and services.

Shared services proposals don’t have to be million-dollar deals. Smaller measures taken by neighboring towns, or a village and town, can reap smaller but still-appreciated savings for taxpayers.

With COVID-19 vaccines still in development and the pandemic still raging, local governments need cost-cutting measures. Sharing services with one or more partners can help municipalities save some money without resorting to more draconian cost-cutting measures.

Back to the Future: What Construction Backlogging Looks Like Into 2021

It’s been a tough year. Every industry has had challenges, some unique and some universal. The pandemic isn’t over, so without a crystal ball, no one knows exactly how this will play out long-term. But what we can do is take a look at where the construction industry is at, and forecast projections for where we are heading so your business is better prepared to rise to the occasion.

While New York construction was deemed an essential service early on which helped many preserve employment, the field has yet to experience the aftershock of the pandemic – and that’s what is keeping industry experts up at night. Maybe one (or many) of your own projects is being pushed back, delayed, or canceled. If that’s the case, know you are not alone. The Associated Builders and Contractors recently reported that its Construction Backlog Indicator fell to 7.5 months in September, a decline of 0.5 months from August’s reading. Comparatively, backlog is 1.5 months lower than it was in September 2019. Contractors expect shrinking profit margins for the seventh consecutive month. This data is reflective across all markets and regions, but has been notably most pronounced in the West, likely due to the various economic and environmental factors facing the state of California. The commercial and institutional spaces, as well as infrastructure are being hit hardest by rapid backlog decline. Backlog is higher in the heavy industrial category, a segment that’s bouncing back thanks to a combination of inventory rebuilding, surging e-commerce demand and production reshoring stateside.

There are a lot of factors at play, contributing to high competition and decreased overall profit. The industry is experiencing fewer bidding opportunities, rising materials costs, tighter lending standards, weakened commercial real estate fundamentals, diminished state and local government financial health, and persistent difficulty in identifying and hiring sufficiently skilled and motivated workers. More than 75% of contractors say they expect profit margins to flat line or decline over the next six months. Now more than ever before, it’s important to reassess your overhead costs, and make timely, tough decisions regarding personnel and expenses. In less extreme financial times, you may have been able to put off making big cuts or drastic financial planning decisions, but today these choices can mean the difference between staying open and shuttering your doors indefinitely. It’s also important to be open to pivoting to where the work is, if your team has experience and can transfer your skillset to applicable areas of construction.

There is some positive news to report. Despite ongoing economic uncertainty as the pandemic lingers, staffing levels are expected to grow over the next six months as contractors strive to hold onto their workforce. Following the COVID-19 outbreak, many contractors have adopted new technology, a welcome update that is sure to advance companies for years. A majority of contractors surveyed (about 70%) do not expect the construction industry to stabilize until at least 2021 and nearly every construction market has a weaker spending outlook in 2021 than in 2020, because approximately 50% of spending in 2021 is generated from 2020 starts and 2020 starts are down. While instability is never fun for a business to navigate, now is the time to lean on the strong relationships you have built with your bank. Yes, hard times ahead may mean a credit line deduction, but banks have a history of working with clients who have established relationships. This will enable you to ride this wave and emerge successful. We will continue to monitor the industry and keep you updated with relevant and timely insights. As always, to discuss your financial future, please do not hesitate to contact one of our dedicated RBT professionals.

This Quick Read Could Save You Over $200,000

You’re in an industry that’s moving a mile a minute. There are only so many hours in the day and there’s always more to get checked off the list, we get it.

In the midst of the COVID-19 crisis, utilizing resources to fund on-going operations and keep employees on the payroll is key. We know your time is valuable and you only have so many spare minutes to read newsletters. But before you jump back into your day: there’s free money your business may be eligible for and missing out on. Do we have your attention? We’re talking R&D credits. While this permanent tax credit remains the most powerful incentive available to American businesses, less than 5% of eligible businesses claim the benefits. Are you a part of the 95% missing out? To understand if you are missing out on a huge savings opportunity, consider these nine manufacturing activities that can qualify for the R&D Tax Credit:

Sales Time (determining requirements, quoting, etc.)
Design Meetings (collaboration among staff, etc.)
Flat Blank Layouts (design modifications, etc.)
Tool Making (design, build, tryout, etc.)
Engineering Process (new equipment, shop redesign, etc.)
Proof of Concept (process documentation, etc.)
Trial Production Run (first run of a product, etc.)
Quality Approval (PPAP, ISIR, etc.)
Shipping (package design, etc.)

Let’s dive into a fifteen second history lesson to learn the backstory here: the R&D credit was established back in the 1980’s because Congress wanted to encourage domestic companies to create innovations to keep the U.S. competitive industry leaders. Due to a 2015 provision, more companies than ever are able to benefit from the R&D tax credit for research activities they’re already doing.

Why is the R&D Tax Credit so underutilized?

Many companies self-censor, or have applied for the R&D tax credit prior to the change in eligibility requirements and don’t realize they qualify. Every year thousands of small and mid-sized businesses nationwide miss out on these huge savings, leaving billions in federal funding untouched. Manufacturing companies often miss out on claiming R&D credits simply because they don’t recognize their work as being innovative. R&D credits are available for manufacturers who are taking steps to improve the manufacturing process by making it more advanced, environmentally friendly, and efficient.

There is an actual four-part test to see if your activities qualify for this credit. The IRS explains this in great detail but let’s break it down:

Permitted Purpose: is this going to be used in the business?
Technological in Nature: there has to be some “hard science” in this activity
Process Experimentation: testing, trial and error of the process
Elimination of Uncertainty: activities must attempt to eliminate uncertainty

The savings can be significant.

Startups and small businesses may qualify for up to $1.25 million (or $250,000 each year for up to five years) of the federal R&D Tax Credit to offset the Federal Insurance Contributions Act (FICA) portion of their annual payroll taxes. On average studies find $20,000 to $40,000 of savings per every million dollars in total company payroll. Plus, this credit is recurring. For as long as a company continues to produce products, this credit can be taken every tax year. There is absolutely nothing to lose by exploring the R&D credit for your company. Numerous manufacturers have been able to grow their business, maintain their competitive edge in the industry, add new jobs and prevent lay-offs because they looked into the R&D tax credit and discovered they qualified for a substantial return. Call an RBT team member today to learn more about whether or not you qualify.

How Municipalities Can Issue Debt to Raise Cash Under Current New York Law, and Why it Could Make Sense for You

COVID-19 has left many New York municipalities short on cash as they grapple with a triple threat: falling sales tax revenues, holds on state aid, and unexpected expenses due to the pandemic. Short-term borrowing strategies can provide local governments with the funds to stay afloat until property tax payments or other revenues arrive to replenish the coffers.

There are two main reasons a municipal government might issue short-term debt: because of revenue shortfalls, or because there has been an unforeseen expense. During the pandemic, many municipalities have seen both. Despite taking other budget-reduction steps, such as curbing spending, offering retirement or separation incentives, or cutting staff, some governments are still facing shortfalls of tax or fee revenues.

“After exhausting other available options, governing boards may need to consider issuing some form of short-term debt in order to generate sufficient cash flow to meet the operational needs for the remainder of the year,” reads a section in The Office of the State Comptroller’s Financial Toolkit for Local Officials in 2020 and Beyond, which recommends consulting with financial and legal professionals for guidance.

The main avenues for short-term debt issuance to address those issues are tax anticipation notes, revenue anticipation notes and budget notes. In dire cases, a municipality may also use deficit financing, also known as a deficiency note.

Tax anticipation notes, known as TANs, are borrowed in anticipation of the collection of the next year’s property taxes, which are generally due in January for counties, cities and towns; or against assessments. Generally, the OSC says, the funds from TANs may only be used for the purposes for which the tax or assessment funds they’re borrowed against would be used.

Revenue anticipation notes, or RANs, are borrowed to generate cash flow in expectation of receiving certain specific revenue types, such as sales tax payments or a particular grant. RAN proceeds may be used to meet expenses payable from the revenues they are borrowed against, according to the OSC.

Budget notes are generally used to finance an unanticipated expenditure, particularly if the municipality was already experiencing a bad year. Budget notes may be used for “any object or purpose for which a local government is authorized to expend money” according to the OSC, and they provide cash that can be used to finance increased appropriations. Budget notes must be used for the purpose specified by the municipality.

The timing on a budget note affects when it must be paid: Adopt and issue the note before adopting the next year’s budget, and the municipality must pay it next year; issuing a budget note after the budget is adopted buys an additional year.

To pursue a TAN, RAN or budget note, a municipality would solicit rates from banks, much as it would when issuing a bond anticipation note for a capital project. The governing body must authorize issuance of the debt, and the bond or debt resolution must include the interest rate, due date, and other details.

The fourth option, deficit financing, is a last resort when there is a deficiency of funds due to lower-than-anticipated revenues for that year’s budget. Local Finance Law imposes strict requirements on the form of the resolution that a local municipality or school district must adopt to issue a deficiency note. If a renewal is required or if the unit of government must issue another deficiency note the next year, state law triggers monitoring by the Office of the State Comptroller and requirements to file regular reports.

Many municipal governments in New York have found themselves in tight budgetary times due to the strains of the COVID-19 pandemic and shutdown, but careful and creative issuance of short-term debt can help them weather the crisis in a fiscally responsible manner.

Slow Speed Ahead: What Supply Chain Delays Mean for Construction Recovery

From inclement weather, to strict building code regulations, a shortage of skilled workers, material cost increases, and supply chain disruption – a lot of variables threaten to slow down the completion of construction jobs in the Northeast.

Not to mention, these roadblocks exist before factoring in the COVID-19 pandemic that has rocked the world economy. So, what happens to construction job completion timelines in New York when the global supply chain experiences shortages, delays and total operational shutdowns? Let’s dive into the lasting effects the construction industry is dealing with, and contemplate what lies ahead.

Many have drawn parallels between The Great Recession of 2007 and the pandemic we are currently experiencing.

The main difference: COVID-19 didn’t just disrupt the U.S. economy, it threw a wrench into the global supply chain process. There is also an acute uncertainty surrounding the possibility or inevitability of a second wave of COVID-19 later this year and into 2021. Contractors are left to navigate constantly changing safety protocols mandated by local and state government. In some instances, this means contractors must prepare for automatic project delays caused by social distancing measures and decreased worker capacity on job sites.

Contractor expectations of recovery vary by region.

The most recent survey conducted by The Associated General Contractors of America found because of the pandemic, 60% of responding firms have at least one future project postponed or canceled, while 33% reportedly have projects halted altogether. The share of firms reporting canceled projects has nearly doubled since the survey AGC conducted in June. Specifically in the Northeast, 45% of AGC survey respondents expect it will take more than six months for their firm’s volume of business to return to normal, while those in the West, South and Midwest expect they will bounce back faster.

Work is resuming.

New York updated its “essential businesses” considerations back in April to include not just healthcare facilities and emergency repairs but roads, bridges, some public school projects, municipal facilities, and energy projects as well. As of June, 33,556 previously closed non-essential sites were allowed to resume construction activity as part of the Phase 1 reopening, according to the New York City Department of Buildings. But global manufacturing plant shut downs meant tacking on additional weeks or months long delays on the local level. In the roofing industry for example, production in mainland China – where nearly 70% of the world’s solar roofing panels are manufactured – was completely shut down in the spring. Production of aluminum, plastic, slate, timber and rubber all declined worldwide since the early weeks of the outbreak.

So is there light at the end of the tunnel? The problem is that we are currently in the middle of the tunnel.

As the world waits on a reliable, widely available COVID-19 vaccine, only time will tell. But according to the most recent JP Morgan survey released this September, August saw manufacturing output increase for the second month running, following a five-month sequence of decline. Production rose and growth accelerated to a 16-month high at consumer goods producers and to 30- and 23-month peaks in the intermediate and investment goods categories respectively. China, the US, Germany, the UK, India and Brazil were some of the larger industrial nations to register expansions of output during August.

The long-term effects of the current crisis have yet to play out.

Contractors that double down on innovation efforts like a heightened focus on lean construction, workforce training or remote collaboration technology, will emerge more resilient. The best defense for contractors of any size operation is to actively evaluate their own supply chains to pinpoint vulnerabilities, identify potential alternative supply sources, prepare for steady cost bumps, and make sure they have adequate provisions in their contracts to protect themselves from the interruptions the ongoing coronavirus crisis creates.

PPE Shortage Continues What Manufacturing Is Up Against

It wasn’t long ago that medical staff at top New York hospitals were forced to suit up in Hefty garbage bags to treat patients at the start of the COVID-19 crisis.

Thankfully, many manufacturing companies stepped up to provide critical personal protective equipment and fill the vast shortage that plagued our country. While talks of PPE demand have dwindled in recent months, the threat of a COVID-19 resurgence ramps up, and supply-chain shortage remains a persistent, unsolved issue. As we see COVID-19 cases spike locally, it’s worth considering both the opportunities and challenges that surround the manufacturing industry.

We’ve seen a number of local professionals within Hudson Valley and Manhattan rise to the challenge.

Many pivoted daily operations to produce various essential items like hand sanitizer, face masks, shields, and plastic partitions for safer work spaces. Without solid assurances from the government for future bulk orders, manufacturers are in a uniquely precarious financial position. Some risk significant losses if they invested in machinery, materials, employees and factory space to churn out a product with a short-lived demand. Given budgetary challenges and local volatility as the curve flattens or as regions spike, demand is unpredictable. Because no manufacturer wants to roll the dice and make a mistimed investment, many PPE manufacturers are winding down production to avoid the risk of holding surplus inventory. However, currently – twenty zip code hotspots including Hudson Valley clusters continue to cause statewide concern. What price do we pay as a society if PPE manufacturers fail to meet real demands from hospitals, nursing homes, shelters, social services providers, and home health agencies?

White House officials say U.S. hospitals have all the medical supplies needed to battle the deadly virus, but frontline health care workers, hospital officials and even the Food and Drug Administration paint a different picture.

Get Us PPE, the nation’s largest nonprofit delivering PPE to frontline facilities in need, tracks supply gaps. Their PPE Shortage Index shows that thousands of healthcare facilities and other frontline organizations are still facing alarming PPE shortages. In August, 77% of facilities in the database had no supply remaining of at least one type of PPE.

Without strategic government intervention, health care and manufacturing officials predict that PPE and medical supply shortages could persist for years.

In New York, state and federal officials announced measures to boost domestic production of medical supplies, alleviating future shortages. About $11 million in grants have been awarded to 20 New York-based companies to retool operations and manufacture COVID-19 supplies. Some experts even recommend formulating a Manufacturing Reserve Corps to lessen supply-chain pressure in future health-care emergencies. Just as aerospace & defense companies do with government contracts, advocates suggest a U.S.-based, pre-approved network of manufacturing companies could build out the Strategic National Stockpile. Building this network would have a clear economic and societal return on investment. Though manufacturing makes up only 9% of U.S. employment, it drives 35% of productivity growth, 60% of exports, and 70% of private-sector R&D, according to the McKinsey Global Institute.

It remains a challenge for industry experts to strike a balance between financially sound production and crisis preparedness, but it’s the conundrum we currently find ourselves in.

The United States can make policy and investment decisions now to improve our pandemic response and help us avoid or minimize the shortages that marked the early days of the pandemic. For more information about smart financial planning for your company, contact our professionals at RBT CPAs, LLP today!

Alternative Methods of Revenue Generation Could Pay Big Dividends for New York Municipalities

Local governments in New York provide a wealth of services to their residents: water and sewer, parks and recreation, police protection, trash and recycling pickup, zoning and planning. If the municipality charges appropriate fees, the types of services that draw people to a given town, village or city can be a boon for the government coffers as well.

Municipalities should first revisit all the services they provide. For each service, ask: what value is the resident getting from this service? What is the cost to provide that service? Are the residents who reap the most benefit paying a proportional share of the cost, or is there a need to restructure?

Services such as a 24-hour police department, or a massive summer recreation program with swimming pools, parks, kids’ activities, and ball fields, can be expensive to maintain. Many local governments provide twice-weekly trash pickup, plus bulk pickups, recycling, and yard-waste haul-away, all of which come with associated costs for the municipality.

Trash pickup is often included in taxes rather than broken out as a stand-alone fee or bill. It can be worth a municipality’s time to consider separating out the fees for trash pickup. This strategy can end up being more equitable for taxpayers.

For example, the City of Buffalo charges an annual set fee for trash pickup, as well as a variable fee based on the number and size of containers the customer typically uses, with higher fees charged to commercial customers. The fee structure is posted on the city’s website, along with detailed schedules and rules for the trash pickup and information on fees for bulk pickups beyond those the city regularly schedules.

Other municipalities, such as the City of Middletown, charge a set residential fee included in taxes, but charge extra for bulk pickups. Middletown charges a monthly rate for its commercial trash customers, with charges set out in the city code fee schedule.

Many municipalities also charge modest recreation fees for rentals of pavilions, fields, or other public amenities. A municipality might also charge the person renting out part of a park a special event fee. Reasonable fees can help defray the cost of clean-up or maintenance. Those municipalities with golf courses should carefully review the total costs of owning and operating the course to ensure that the revenues generated cover the total costs whether through concession contracts, greens or other fees.

Development is another area ripe for reexamination to ensure that fees are appropriate to the work performed and the services provided.

Municipalities typically require developers to deposit funds in escrow to cover the costs of legal and engineering reviews of proposals. But municipalities may be leaving money on the table if they don’t revisit the types of fees they charge.

A new housing development or commercial project means more homes or businesses for police to protect. Perhaps a municipality can add a police or public safety fee to defray those costs, much in the way that it would charge a hookup fee to connect a new development to water and sewer services.

Another thing for municipalities to consider is instituting a transfer tax for real estate purchases within their borders. While buyers pay mortgage tax and some of that does go to the municipality, the local government will get nothing if a buyer pays cash.

Each of these fees may be modest on its own, but the money can add up.

Local governments provide a wealth of services to the people who live within their municipal borders. Determining the cost of those services and charging appropriate, proportional fees can help municipalities generate the revenue needed to continue providing those valuable and valued benefits to taxpayers.