Day: May 10, 2023

5G Gaining Traction Among Large Manufacturers; Middle Market Companies Are Next

For years now, there has been a lot of discussion about the transformative powers 5G will have on manufacturing and the world. There have also been numerous discussions questioning whether its capabilities have been overexaggerated. As we enter year five of the discussion and transformation, it looks like 5G is taking hold, especially in large companies. Some sources even suggest that companies that don’t start planning for 5G will be at a significant competitive disadvantage in the future.

Admittedly, I am a CPA trying to talk future technology, so bear with me. To take this story forward, I took a step back to get my grounding. First, what is 5G? Literally, it stands for the fifth generation of cellular wireless technology. 1G allowed for voice. 2G allowed for digital voice. 3G allowed for data. 4G brought streaming. 4GLTE allows all the things up through 4G, but faster and better than ever before. Enter 5G, which appears to be a game changer that will take the world leaps and bounds ahead of where it is now.

With 5G, communication will be significantly faster (transmitting data 20x faster than 4G). Everything and everyone will be connected — more machines, objects, and devices (handling 100x more traffic) than ever can operate on the network and perform without issue, making it available to more users and more reliable. The delay in data traveling and an action occurring (latency) will be much lower, thanks to higher radio frequencies allowing data to be transported much faster. And, it supports wireless operations, allowing the imagination to run wild on configuring a shop floor. (Source: Stone, Mark. What Will 5G Cost My Business? Verizon.com.)

So, where does everything else – like IoT, edge computing, robots, augmented reality (AR), virtual reality (VR), automated guided vehicles (AGV), sensors, machine vision, and more – fit in? Wi-Fi just can’t handle all of it or maximize what their combined abilities are capable of; 5G can. It’s basically where everything is going to come together and be able to do all of the things we’ve been hearing about for years. What’s more, there will be more data available to help with decision-making.

As an end game, 5G is expected to transform how work gets done and data gets used, driving productivity, competitiveness, quality, cost savings, and profitability. It will impact virtually every aspect of the manufacturing process, from inventory tracking, facility security, warehousing and logistics inside facilities, and quality control to assembly, maintenance, safety, and even employee training.

In a 2021 study, the Manufacturing Institute learned, “Nearly all manufacturers (91%) believe 5G connectivity will be important to the overall future of their business, with three-fifths (61%) indicating it will be extremely important.” In addition, the study found companies expect 5G to deliver significant value to enable new applications, increase automation, enable AR/VR applications, enable use of mobile robots and AGV, redesign factory spaces and machines, allow for remote line of sight into operations, and decentralize decision making.

As reported by Accedian.com, “One of the most profound properties of 5G is the ability to allocate network capacity to private enterprises. This is network slicing. It gives enterprises the means to set up high speed, low latency connections in a self-contained environment.” The Accedian report includes Analysys Mason data indicating that by 2024 76% of manufacturers will adopt private 5G networks to improve network security, performance, and application.

Metrology News reports “By 2030, more than 50% of the major manufacturers will have 5G implemented on their shop floors.” What about the middle market? The high cost, infrastructure, and talent demands that accompany the move to 5G seem to put it out of reach, for now. Still, there are opportunities for more middle market and smaller manufacturers to upgrade infrastructure in preparation for 5G. For example, adopting multi-access edge computing (MEC) that enables ultra-low latency via wireless technology can be launched on LTE networks today and integrated with 5G later. (Source: Yee, Bernard. How Manufacturers Can Prepare for the 5G Revolution. ATT.com.)

Finally, as reported by RSMUS.com, “While today private 5G networks are not widely deployed in the middle market manufacturing space, we see this marketing growing as companies continue to integrate 5G use cases into their business and look toward digital innovation to maintain competitiveness in the market, offset staffing challenges, and deal with increased labor costs.”

Like I said at the start of this article, I am a CPA, not a technology person. So, please take this information for what it’s worth (and not as advice). However, as a CPA, the RBT CPAs team and I can help you explore potential tax credits for research and development, as well as other potential tax saving opportunities related to your investments in future technology. Interested? Give us a call because we believe we succeed when we help you succeed.

Is Technology Going Too Far, Too Fast?

Originally, I was going to write about six technologies that are changing healthcare, but as I started researching the topic, I realized two things. One – I’m an accountant not a healthcare professional and no amount of research is going to ever position me to advise a doctor or a medical practice CEO on the latest in healthcare technology – the field is simply too vast and too complicated, and understanding it requires medical education, training, experience, and a lot more. And two – I think Elon Musk may be onto something.

Imagine having a Supreme Court Justice robot using AI to “hear” an important case and rendering a decision based on algorithms that helps it scour and analyze an abundance of historical data…A professional football coach robot quickly analyzes all of the data about the players and teams on a field to predict the next play, counter-play and game outcomes before the first whistle blows….An accounting robot automatically gathering data for tax season, synthesizing it, and generating your filing so it’s in your email for signing without you or any other human doing a thing. Actually, forget that last example. Just kidding, but also not kidding considering where AI is with the release of CHAT GPT, and where it may go.

Seriously, when researching health care technology trends, my heart started racing a bit and I began to give real consideration to Elon Musk’s recent call to pause artificial intelligence (AI) development until we understand it a little more and put some governance around it. What if people start querying symptoms, increasingly use it to self-diagnose, and follow outdated or wrong information?

I have learned when reading and researching topics like this that much of the talk about technology does focus on a future state that doesn’t exist yet, but may become reality sooner than we’d think or like. Even though we’ve been hearing about the potential of AI for years, at this point it feels like perhaps the pace of its development and potential is outpacing our ability to wrap our minds around such radical transformations and their broader implications.

Still, I have an article to write about technology and healthcare. Out of intellectual curiosity, I conducted a little experience. I gave CHAT GPT, the AI technology taking the world by storm this prompt: Write an article about six technologies that are changing healthcare. See below to see the results.

Without looking at the output, I continued working on the article the old-fashioned way, and after “following the story and research” found myself landing in a different place with a different discussion.

I realized there are two types of healthcare technology – one that can fall in the bucket of impacting health and outcomes, and one that falls in the bucket of running a health care related business.

As I said earlier, out of respect for health care professionals’ education, training, knowledge, abilities, and passion, I don’t even come close to being qualified to talk about healthcare technology as it relates to actual care and outcomes. It’s mind boggling to learn about things like using 3D print technology to create hearing aids or replacement joints faster and at lower costs; AR/VR to help doctors practice procedures; or smart bandages monitoring and promoting healing. I can even wrap my mind around technologies enabling collaborations, predictive analytics, data sharing, and care equity while reducing environmental impacts. However, when research starts leading to ideas about cutting out strands of DNA and things of that nature, the discussion is clearly over my head, and one better left to the experts. Still, there is a technology discussion to be had, and it falls into the second bucket: technology developments that are reshaping the business side of healthcare.

HealthcareDive.com reports, “As 2022 drew to a close, several factors suggested that technology adoption was slowing down, including a cooled landscape for digital health funding and a drop in virtual care utilization. In addition, a flurry of cyberattacks and concerns over the privacy of sensitive medical data highlighted the hazards of new technology adoption. Despite this, experts remain upbeat about the potential of technology to improve U.S. healthcare in 2023.”

The article goes onto predict that with so many individual technology solutions in the market, health care organizations are going to prioritize tech investments and strategies to focus on basics, like patient intake, revenue management, physician enablement, care coordination, patient engagement, and data security. Concurrently, there will likely be consolidation and integration among healthcare tech providers.

HealthTechMagazine reinforces a similar thought process, with predictions that 2023 healthcare technology uptakes will largely focus on security, data analytics, and workflow automation. I even came across one story talking about “robots” walking patients to exam rooms and handling the disposal of hazardous materials so medical staff can spend time on value added activities.

Now, I have to admit, after coming to this point in the thought process, I stepped back and looked at the content generated by CHAT GPT. I was pleasantly surprised by the clarity of its writing abilities. While I think it’s accurate, I’m not sure it would add much value to you – the content is pretty basic, and I fathom to guess most people reading it wouldn’t walk away with anything new. So, for now, at least, I’m going to stick to doing my articles the old-fashioned way (even if my son is telling me I’m wrong and it’s because I don’t understand prompt engineering – that’s another discussion for another day).

Now onto simpler things, like if you need accounting, tax, audit, or financial advisory services…You can continue to count on the humans at RBT CPAs to deliver an exceptional customer experience with the highest of ethics. If you’re interested, give us a call. A human will even answer the phone!

Are You Getting Mixed Messages About New York’s Budget?

New York has a 2024 Fiscal Year Budget! It comes to $229 billion, a $7 billion increase over last year. After scouring numerous articles to learn more, the main things I walked away with are that there will be a minimum wage increase; no new personal income taxes; no gas hookups in future construction; judges will have a little more flexibility; a handful of inactive charter schools will be reactivated; more people will be eligible for childcare support; the cigarette tax will go up $1; and there are some changes to the MTA. However, it felt like for $229 billion something was missing, so I decided to take a closer look.

I started with New York’s five-year financial plan. The Executive Summary reviews the state’s economic strength pre-COVID, briefly mentions the pause that occurred on many levels during COVID, and then notes that “States finances, however, have fared better than expected.”

From FY 2020 to FY 2021 – the acute phase of COVID, tax collections declined .6%. By the following FY (2022), tax collections grew by 27% (“equal to about seven years of typical tax receipts growth compressed into a single year”). This year, tax collections are expected to increase by almost $115 billion or almost 10%. There will be a General Fund surplus of $8.7 billion.

The summary notes, “The surplus is used to strengthen the State’s capacity to weather the economic downturn on the horizon.” Some of that money is going into reserves for the future. Some of it is prepaying Retirement Health Trust Fund benefits. Some is for debt recapitalization. The balance is for “prepaying expenses and managing budget gaps.”

So, we will end the FY with a cushion of about $19.5 billion and will have prepaid over $10 billion in future debt service costs from 2024 to 2027. Tax receipts are still coming in strong, but there’s an expected “mild national recession” in 2023.

Financial challenges are expected in 2024 to 2027. Wage growth is expected to slow, decreasing from 3.3% and 4.3% in the May 2022 forecast to 2.8% in FY 2023 and 2.3% in FY 2024. Bonus income will take a big hit, declining 27% in FY 2024 from FY 2022. General Fund tax receipts before the actions in the recently approved budget are reduced by $2.1 billion in FY 2024; $7.4 billion in FY 2025; $7.8 billion in 2026 and $5.2 billion in 2027. Still, it sounds like we’ll be in a good position to “weather the storm.”

Moving onto the Financial Plan Overview, it says the budget addresses three of the most pressing issues facing the state at the start of 2023. Can you guess what they are? Basing my guesses on the Governor’s playbook and media coverage of the budget, I was way off base. The three most pressing issues: the Metropolitan Transportation Authority’s solvency; the State’s health care system; and caring for asylum seekers coming to the State. I’m pretty sure I would’ve noticed those if they had been part of any of the media stories I scoured.

The overview goes on to state there’s a “comprehensive financial plan to put the MTA on stable financial footing”; “substantial new capital and operating aid for healthcare” and a commission looking at how to improve quality while reducing costs; and “extraordinary funding to local governments that are providing services and assisting with the resettlement process for asylum seekers.” There’s also funding for State of the State priorities like mental health, housing, public safety, and SUNY. The overview ends talking about significant projected budget gaps for 2025, 2026 and 2027 due to reduced tax receipts and without using any reserves.

I’m still stuck on what some could perceive to be mixed messages. So, I went to the Executive Budget Highlights and decided to do some math. Based on investments from largest to smallest, here’s where the spending priorities appear to be:

Students and schools: $34.5 billion
Public transportation: $450 million plus $17.7 billion (Note: These numbers do not include $400 million in operating efficiencies expected from the MTA; generate an additional $800 million by increasing the top rate of the Payroll Mobility Tax; and increase NYC’s share of funding to $500 million; share in licensing fees and annual revenue from three possible casinos)
Childcare: $7.6 billion over four years plus $418.8 million in targeted investments
Climate crisis: $5.5 billion plus 2022 Environmental Bond Act spending of $1.5 billion
Healthcare: $2.34 billion
Assistance to asylum seekers: $1.1 billion
Mental health care: $1 billion multi-year plan
Gun violence & public safety: $787.9 million
Economy: $610 million
Housing: $378.8 million

Then I turned to the 2024 Budget Executive Briefing. Page 15 defines three key initiatives as mental health, affordable housing, and public safety. Okay, I had heard those being among priorities. Then I turned to page 31 talking about ongoing infrastructure investments and see that there’s a $52.1 billion capital program for the MTA from 2020 to 2024. I think that may mean that public transportation bumps students and schools from the #1 spot above.

I decide to go back to where I started, skimming the five-year plan and slow down when I come to the section on local assistance, which indicates two-thirds of state spending goes toward local programs (see pages 46 and 47) where the priorities again appear to be education, healthcare, mental health, transportation, and social services.

So, I hoped my article helped clarify things. Just kidding – it looks like you have your hands full. If you need some extra time to get your arms around the budget and what it means to your municipality, RBT CPAs is here to help. Let our accounting, audit, tax, and financial advisory service professionals assist you so you can focus on other priorities. To find out what we can do for you, give us a call.

Residential and Commercial Real Estate Update

Depending on the type of construction your company does, it’s always valuable to understand what’s going on with real estate so you can consider implications on your strategy and business and make adjustments to plan accordingly.

Norada Real Estate Investments recently issued its 2023 New York Housing Market: Prices, Trends & Forecast for 2023. Comparing February 2022 to 2023, closed sales decreased by 34.3%. Median sales prices dropped 6.3%. New listings were down by 15.8%. Pending sales were down by 8.1%. Home inventory was down by 8.2% (the 40^th straight month of a decrease). Days on the market went up by 4.7% (to 67 days).

Then, the New York State Association of Realtors® (NYSAR) released a report on April 20, providing insights through March of this year. The report indicates the housing market was slowing even further when for the 41^st consecutive month, year over year comparisons showed inventory dropping across the state. Inventory decreased 12.4%. Closed sales were down 28.4%. Pending sales decreased 11.2%. New listings were down 22.9%. The 30-year fixed rate mortgage was up from February’s 6.5% to March’s 6.54%. Median sales price was down 6.1%.

According to the Norada report, “The New York State housing market is likely to continue struggling in 2023 due to the low inventory of homes and rising mortgage interest rates. However, as the interest rates start to decline, they can increase demand for real estate and raise home prices. The National Association of REALTORS® predicts that interest rates will gradually decrease in the coming months, reaching around 5.0 percent by the end of 2023. This could help boost the housing market by making it easier for buyers to obtain mortgages and increasing demand for homes.”

So far, interest rates aren’t cooperating. According to FinTechBuzz.com, “The slowdown in residential construction is the result of myriad factors, including labor and materials shortages and lingering red tape from Covid-19. But also, interest rates work like gravity; as they rise, they pull asset values back down. Lower asset values translate to lower profit margins. Thus, many investors and buyers are holding onto their money as opposed to pursuing slim profit margins on a single-family build.”

When it comes to the commercial market, FinTechBuzz.com reports, “Demand is also drying up in some corners of commercial real estate, while projects are taking 24 to 48 months longer to complete. A higher employment rate will manifest greater demand for office space, while greater consumer spending power results in more demand for hospitality and retail. Currently, retail and hospitality are seeing reduced demand, while projects like multifamily housing complexes and infrastructure remain promising. While higher rates will still reduce profit margins on such projects, they will likely become the core focus for commercial real estate and construction companies as the government attempts to stabilize inflation.”

As for the commercial market in New York, CostarNews.com reports: “Commercial property sales in New York, driven by a decline in Manhattan, slumped by more than half in the first quarter from the end of last year as higher interest rates and worries about a looming recession seized up lending and investment across the country. The plunge is setting the city up for its worst annual commercial property sales expected since 2009, according to a study from real estate firm Avison Young.”

All of this is underscored by growing concerns about pending commercial real estate debt coming due, with financial leaders sounding some alarms but the Fed holding fast to the position that regional and local banks are in a good position to handle what’s coming. Stay tuned…

While you focus on the myriad of factors impacting real estate and ultimately construction, you can depend on RBT CPAs to focus on your accounting, tax, audit, and financial advisory needs. We believe we succeed when we help you succeed. Learn more. Give us a call today.