Keystone Builder - March/April 2006 by Pennsylvania Builders Association

March/April 2006

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I Keystone Builder â&#x20AC;˘ March/April 2006

Keystone

Official publication of the Pennsylvania Builders Association®

b u i l d e r Contents Volume 3 • Issue 2 March/April 2006

Putting the ‘success’ in succession planning

8 Plan your retirement now 12 Exploring Energy Series 16 PBA Premier Partners 17 18 Tax planning 20 Caught in the Web Builder Case Study 22

From choosing a successor to the valuation of assets, there are several things to consider for the future success of businesses.

A guide to saving for retirement to help builders think ahead and plan for a prosperous future.

Solar water heaters use the sun to provide free fuel for heating water, which could significantly lower homeowners’ utility costs.

PRESIDENT Bradford H. Elliott HBA of Bucks/Montgomery Counties VICE PRESIDENT Stephen D. Black, BIA of Lancaster County PBA ASSOCIATE VICE PRESIDENT Rob Jones, Central Susquehanna HBA SECRETARY Ray Fertig, York County BA TREASURER Kenneth L. Medina, Lebanon County BA IMMEDIATE PAST PRESIDENT James L. Conner Lawrence County BA

Find out what it means to be a PBA Premier Partner and how they are supporting the activities of the association while gaining valuable exposure.

With the current tax filing season quickly coming to a close, there’s no better time to start planning for next year’s tax filings.

Learn how to navigate PBA’s web site.

Joe Peterson of Hanover Homes North Corporation goes from an uninspired engineer to one who is passionate about the building industry.

KEYSTONE BUILDER is published six times per year by the Pennsylvania Builders Association, Editorial Offices, 600 North Twelfth Street, Lemoyne, PA 17043. POSTMASTER: Send address changes to Pennsylvania Builders Association, 600 North Twelfth Street, Lemoyne, PA 17043. SUBSCRIPTIONS: Subscriptions available through membership to the Pennsylvania Builders Association.

Departments President’s Column • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 6 Association News • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 15 Builder News Briefs • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 26

Members-Only Section In My View: Congressman Joe Pitts discusses why we should bury the death tax. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • B On the Hill: Up-to-date legislative information for our members. • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • C

Keystone

President’s

Official publication of the Pennsylvania Builders Association®

Message

b u i l d e r An exclusive publication of PBA Keystone Builder magazine is published six times a year by the Pennsylvania Builders Association®, Editorial Offices, 600 North Twelfth Street, Lemoyne, PA 17043. With the exception of official association announcements, the statements of fact and opinion that are made herein are the responsibility of the authors alone and do not reflect an opinion or philosophy of the officers or the membership of the PBA. Materials may not be reproduced without written permission from the PBA headquarters.

Imagine your business without PBA

Address Correspondence To: Keystone Builder 600 North Twelfth Street Lemoyne, PA 17043 Phone: 800-692-7339 or 717-730-4380 Fax: 717-730-4396 Web: www.pabuilders.org Advertising does not imply acceptance or endorsement of the products contained in the publication. PBA members are welcome to submit article ideas for upcoming issues of Keystone Builder. Suggestions for articles showing industry trends, providing information that will help members operate their businesses and other topics relevant to the industry are welcome. Lead time for articles is two months prior to the issue date. Contact editor Eric Wise at (800) 692-7399, ext. 3003, or by e-mail at ewise@pabuilders.org. Publishing and advertising sales services provided by:

2929 Davison Rd. • Flint, MI 48506 Phone: 800-935-1592 • Fax: 810-239-2231 Editor Eric C. Wise Assistant Editor/Publication Director Jennifer McDermitt Advertising Sales Jeff Pinwar Graphic Design Jason Gabel For information on advertising in the Keystone Builder please contact Jeff Pinwar at 800-9351592. Please support the advertisers who have made this publication possible.

n preparing for my recent installation as 2006 association president, I reflected about what the Pennsylvania Builders Association has meant to me over the years. I’d like to share some of my observations in the hope that my thoughts will reinvigorate your commitment to PBA, much as they have for me. The annual installation banquet, I believe, provides a great opportunity to celebrate PBA. It’s a time to celebrate all of us coming together from across this great state for a common cause and to celebrate our successes. PBA is about promoting and defending our industry, bettering our businesses and ourselves, and being part of something that is greater than each of us or our local. There’s value in celebrating the existence of PBA because, quite frankly, I can’t imagine life in this industry without it.

I Keystone Builder • March/April 2006

Imagine life without PBA Take a moment and imagine the impact on your business if PBA didn’t exist. For many of you, it would mean even higher health insurance or workers’ compensation rates. For some, it may even mean not being able to provide health insurance at all. Imagine your business without PBA. For many, that would mean unwarranted transportation impact fees or, even worse, concurrency requirements. PBA led the legal battle against the abuses in Manheim Township, Lancaster County, and Cranberry Township, Butler County, taking the issue all the way to the state Supreme Court. It was because of PBA that Pennsylvania now has some of the toughest requirements in the country for enacting transportation impact fees. Imagine your business without PBA. For many, that would mean even more excessive

Brad Elliott

PBA President We, the members, are PBA. We identify the issues, we staff the task forces, we work together to get the job done — all of us from every corner of the state. permit requirements. It would mean more arbitrary and excessive code requirements that drive up your construction costs. It would mean paying an architect and engineer to draw up separate construction drawings for each township in which you build. It took PBA 20 years of hard work with state legislators to fashion a statewide building code and make it law. Twenty years! You should be proud that, through PBA’s efforts, Pennsylvania now has construction standards that builders across the state can hold up to public scrutiny.

There’s so much more Again, imagine your business without PBA. Many of you would not be able to design homes for your own clients without an architectural license. In 1997, PBA took action to counter attempts by the Architects Continued on page 25

CORRECTIONS: PBA regrets that the association’s senior officers were listed incorrectly on the Table of Contents page in the January/February edition of Keystone Builder. Also, in the “Association News” section, the Northcentral leaders’ titles were incorrect. Ray Venema serves as the regional legislative officer, and Chris Schoonmaker serves as the regional vice president. ▲

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March/April 2006 â&#x20AC;˘ Keystone Builder

A SOLID FOUNDATION: Build a better future for your business

Putting the ‘SUCCESS’ in succession planning Putting the ‘SUCCESS’ in succession planning From choosing a successor to the valuation of assets, there are several things business owners must consider to ensure the future success of their businesses. by Jennifer McDermitt obody likes to think about the day when they won’t be around, whether that means in life or in business. Business owners, especially those in the building industry, often spend many tough years developing their business, and the thought of passing that business to someone else — even their own child — is unimaginable. However, with the National Association of Home Builders reporting that businesses only have a 35 percent of survival once it’s passed on to the next generation, business owners need to get serious about planning for the future of their business, no matter how uncomfortable it may be. Many business owners may be surprised to find out that their inability to face a future without them in it may be the No. 1 contributor to NAHB’s statistic.

I Keystone Builder • March/April 2006

“Many times, business owners subconsciously set their own businesses up for failure, especially when it comes to handing the business down to a second generation,” said Ron Robichaud, a consultant who deals exclusively with building industry businesses through his company, Associated Builders Solutions. “In one way, they want them to succeed, but on another level, they kind of don’t. Most business owners do not think about an exit strategy early enough, because they just can’t face the thought of not being part of a business they have worked so hard to build.” Harold Beschaw, a certified financial planner with M&T Securities, says that even more shocking than NAHB’s statistic on the success of second-generation businesses is that of third-generation businesses. “Only 8 percent of the 35 percent of business that survived the second generation ever live to see a third gen-

eration,” he said. “Business transitions are often forced upon people through life events, and the only way you can prepare for this is to have an exit strategy early on. It’s the people who planned ahead who inevitably make up the small number of businesses who succeed from generation to generation.”

Choosing and training a successor — the right successor Few people are able to see their children objectively. This is fine in an ordinary parent/child relationship, however this lack of objectivity creates problems in business. Business owners must be able to step away from their role as parent and see their chilContinued on page 10

Step

✔

Are the deceased wills in order?

Is Uncle Sam an inheritor? Or, how much of an inheritor is Uncle Sam? How is the company going to be valued for estate purposes?

Is there enough cash to pay the IRS through the deceased’s personal estate or will the money come from the company’s liquid assets? Can the company afford to pay back a loan if it’s needed to pay the estate taxes?

✓

Who will own the business? Are the assets distributed as you wish? How is the estate split up to the family members not involved with the business? Will they be stockholders or partners or get another piece of the deceased’s estate? Does the company go to the spouse who may not be qualified to manage the business? Has there been a successor picked to handle the business investments?

✓ ✔

Who will take over the leadership of the company? Is the apparent successor in place or ready? Who controls management of the company? Is the outside board of directors or family business advisers prepared to handle the crisis?

✓

If no one chosen yet, is a succession plan in place to choose a leader in a short period of time? Will the business survive?

Succession plan

The following steps can be used to create a succession plan:

Family meetings: Family meetings improve family communication. They have been proven to build stronger families and stronger businesses. Meetings can smooth difficult transitions and issues by dispelling misconceptions, reducing politics and averting painful and costly conflict. This activity is considered one of the two most important things a family can do to ensure the continuity of the family business. (The other is to establish an outside board of directors.) Hold meetings regularly (quarterly at a minimum) and set agendas. Some businesses use facilitators, others rotate the responsibility for coordinating and running the meeting between family members. Family meetings keep the family members informed during planning and the transition. It helps them avoid conflict and resentment. Mission statement: This document is a description of the company’s future mission. It describes the corporation as it relates to customers, employees, the target market and the community. Ideally, it is a short document ranging from three sentences to four short paragraphs. Mission statements aid succession planning as it identifies the future talents and characteristics needed of the future leader. Determine future leadership characteristics: List the leadership characteristics that are the most important for your specific corporation, taking into account the corporate environment and your mission statement. Keep in mind the importance of running the business along with the issues of being a family business leader. Some characteristics you may want to consider are listed at left. List all potential successors: This is the brainstorming step and it’s vital to include absolutely everyone. Do not exclude key non-family members, if this is a possibility. This would be best accomplished with brainstorming with your family. It assures everyone is a part of the process. Assessment: It is imperative to the transition process to choose a successor as objectively as possible. The different types of vehicles that can be used are found below and should be considered. What one business and family would be comfortable with another may not. Development and training: A business’ final succession plan should include a training and development plan. The training plan should address the needs of the successor and other family members who will continue to support the business. Consider mentoring programs and formal and informal training programs. Communication plan and timetable: Communication is key to the succession. The successor must understand and respect his or her role, while it’s equally imperative other family members accept and publicly support it. The company must also manage communication to customers, suppliers and employees both before and during the transition. With proper communication they will better embrace the change and know that the corporation cares about continuity. This gives them peace of mind. Evaluation — conduct the ultimate check! As awful as it is to think about it, to truly assure that the business is properly planning for the future go through this exercise. The senior generation chief executive or president has had an accident where (s)he has passed away or will be incapable of working again. Utilize the checklist below to determine if your organization is ready for the future. Be perfectly honest in your answers. Review areas of needed work and put programs into place to as soon as possible to assure continuity. Check off if you feel the questions below can be answered to your satisfaction. “Eight-Step Succession Plan” courtesy of Laura Michaud, owner of The Michaud Group, a firm dedicated to family businesses. ▲

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March/April 2006 • Keystone Builder

SUCCESSION Continued from page 8

dren’s strengths and weaknesses to make appropriate decisions about their role in the future of the business. “When it comes to choosing a successor, the best thing business owners can do for themselves is to take time,” said Robert Massengill, managing director of SES Advisers in New Jersey. “You have to be able to bring people up through the business to know where their true talents lie. Nine times

out of 10, the financial transition of a business goes pretty smoothly. It’s the management transition that inevitably causes the failure of businesses, because the new managers were either never meant for management or they weren’t properly trained to manage.” Robichaud agrees, “You have to be able to see a fire in their belly. If you don’t see that in the person you think should succeed you, you have a big problem.” Laura Michaud, owner of the Michaud Group, says that many business owners make a mistake in assuming their children should

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run the business. She said, “It’s hard to get it into your head that the successor doesn’t have to be a family member. You have to ask yourself, ‘Are my kids ready and competent to run this business?’ That’s a very difficult question to ask, but you need to be honest with yourself and look throughout the business to determine who is the most competent to take over.” If a business owner does choose a child as a successor, however, Michaud suggests the successor gains business experience before joining the family company, with credibility outside the environment where he or she is seen as the “boss’ kid.” Once a successor is chosen, training that successor is just a matter of time, including hands-on experience in each area of the business, Robichaud said. Michaud is the third generation in her family’s business, and she says that because she was naturally good at sales and marketing, her father made sure she spent more time in production — an area of weakness for her. “Although I didn’t necessary enjoy it at the time, my father put me where I wasn’t good, instead of letting me work in an area I was already competent. That was important training for me,” she said.

Timing is everything in transitions

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I Keystone Builder • March/April 2006

A successor has been chosen, and the successor has spent a sufficient amount of time in all areas of the business — now what? The timing of the transition is delicate, and it’s the most difficult part of the process for many business owners. “Most business owners started a business because they like control, so that can be a very hard thing to give up,” said Robichaud. Many problems might arise in a transition. A successor may be eager to prove himself outside the shadow of the previous owner, or may be nervous about the imminent responsibility and may also resist a transition. Management should plan the transition with a timetable to ensure the continuity of management. This timetable should be re-evaluated periodically to ensure that it is still applicable. Kenneth Medina, PBA treasurer and senior financial consultant for M&T Securities at M&T Bank in Harrisburg, says that a prewritten plan is the only way to go. He said, “Parents sometimes have a hard time letting go of the business, but if you have an established plan and timetable that has been agreed

upon by everyone, you take away the awkwardness of the transition.â&#x20AC;? If a pre-established timetable doesnâ&#x20AC;&#x2122;t work for you, Massengill knows of another route. â&#x20AC;&#x153;I had a customer who owned a manufacturing business,â&#x20AC;? he said. â&#x20AC;&#x153;He drew a big chart on the floor of the company that denoted productivity. He then drew a big red line across the middle of it, and he called the line the â&#x20AC;&#x2DC;keep Phil in Florida line.â&#x20AC;&#x2122; If productivity dropped below the red line, he threatened to come back from Florida and â&#x20AC;&#x2DC;ride the juniors.â&#x20AC;&#x2122; If productivity stayed above the red line, heâ&#x20AC;&#x2122;d stay in Florida. Needless to say, the â&#x20AC;&#x2DC;juniorsâ&#x20AC;&#x2122; were careful to keep above that red line, and Phil stayed in Florida!â&#x20AC;?

You canâ&#x20AC;&#x2122;t take it with you After owners decide the future management of the business, they must plan to transfer business assets. â&#x20AC;&#x153;The government can take almost 48 percent on your estate when you die, and if you havenâ&#x20AC;&#x2122;t planned accordingly, the next generation you worked so hard to prepare and train will have to sell the business to pay the taxes,â&#x20AC;? said Michaud.

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Medina says that buy/sell agreements are the best way to prepare for the unexpected. â&#x20AC;&#x153;Agreements help you set up a future value that should hold up during IRS evaluation. They are very important in the event you die unexpectedly, and they may make the difference between your business failing or succeeding past your lifetime,â&#x20AC;? he said. These agreements provide liquidity when the purchaser has funded the purchase price with life insurance on the decedentâ&#x20AC;&#x2122;s life. The agreement can be between the business and its owner (a redemption plan) or among the various owners (a cross-purchase plan). A tax adviser may help draft a sales agreement to maximize tax benefits. Whether you choose to use a buy/sell agreement or other means, experts agree that the foundation of any transfer of assets is accurate valuation. A professional trained in your industry should assess the value of your business and renew the estimate every few years. â&#x20AC;&#x153;Very few business owners know the real value of their business,â&#x20AC;? said Massengill. â&#x20AC;&#x153;Most have an inflated or deflated view of its worth, so itâ&#x20AC;&#x2122;s very important to have a valuation done on your business to stay realistic.â&#x20AC;?

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When most business owners started their businesses, they probably worried more about how to survive the first five years versus how the business will survive when they are gone. However, with careful planning, an eager successor, a good valuation and help from a professional financial adviser, a business owner can rest assured that his or her business will live on for future generations. â&#x20AC;&#x153;The businesses that succeed have two things,â&#x20AC;? said Michaud. â&#x20AC;&#x153;First, they have an outside board of advisers so that emotion wonâ&#x20AC;&#x2122;t get in the way of doing business. Second, they have regular, scheduled meetings to keep everyone in the loop and to keep the lines of communication open.â&#x20AC;? Medina said the success of the business, much like the success of anything, lies in the planning. He said, â&#x20AC;&#x153;You need to understand the full process of succession and have a plan. Then, you need to have contingency plans, because you donâ&#x20AC;&#x2122;t always know what is going to happen. The fact is, builders donâ&#x20AC;&#x2122;t build a home without a plan, so why wouldnâ&#x20AC;&#x2122;t they do the same for the future of their business?â&#x20AC;? â&#x2013;˛

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March/April 2006 â&#x20AC;˘ Keystone Builder

I 11

A SOLID FOUNDATION: Build a better future for your business

Don’t bet on it! Plan your retirement now A guide to saving for retirement by Nikki Brand hile some business owners plan for a prosperous future, many in the building industry have put all of their money in their business and ignore planning for retirement. When they do plan for the future, their retirement plans do not always work as well as they’d hoped. “I hear quite often that builders aren’t saving for their retirement,” said Kenneth Medina, PBA treasurer and senior financial consultant for M&T Securities at M&T Bank in Harrisburg. “They say that they’ll get money from selling their business, but as a financial adviser, we tell people not to put all of their eggs in one basket.” Peter Ressler, vice president of investments for Commerce Capital Markets, said builders have told him that they are making money now, they don’t need to save, or that they prefer investing in real estate or equipment. However, when they retire, they will not be earning money at the same level and selling their equipment will not provide them enough money to retire. “Our biggest challenge is getting young people to understand how advantageous a tax deferrable, tax deductible account is,” Ressler said. Brad Elliott, PBA president and owner of Elliott Building Group, admitted he didn’t realize how important it was to save for retirement when he first started his business more than a decade ago. He now invests in a Savings Incentive Match Plan for Employees IRA, has investment properties outside of his business structure and has life insurance. “It’s always a challenge to save for retirement, because all of your cash is tied up in your business,” Elliott said. “It is especially important for small business owners to save, because many small builders have 99 percent of their net worth in their business. I think you should start saving for retirement in your first year of business.”

Investing doesn’t have to be scary Nobody wants to lose hard-earned money, but with the guidance of a financial adviser, and by diversifying their investments, business owners can feel more confident with their preparations for a secure retirement. “Some people are concerned because they may have invested in one stock a few years ago that was recommended by a friend and lost all of their money, but if they diversify, they shouldn’t lose it all,” Medina said. “I tell people, ‘You didn’t amass your money overnight and you’re not going to decide on your investments overnight. When building a house, you plan it, develop it, built it and maintain it and that’s like planning an Continued on Members Only page A

I Keystone Builder • March/April 2006

It’s always a challenge to save for retirement, because all of your cash is tied up in your business. It is especially important for small business owners to save, because many small builders have 99 percent of their net worth in their business. — Brad Elliott, PBA president and owner of Elliott Building Group

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March/April 2006 • Keystone Builder

I 13

I Keystone Builder â&#x20AC;˘ March/April 2006

What are your options? Setting up a retirement program is a way for you to save up for retirement while also rewarding employees and increasing employee recruitment, retention and morale. Plus, your business could benefit from the tax incentives. Here are some of your options.

SIMPLE IRA One of the most common retirement savings plan builders use is a Savings Incentive Match Plan for Employees IRA. In this plan, employers with no more than 100 employees are eligible to establish a SIMPLE IRA. Employers should note that every employee must be included in the program — the employer will invest 2 percent of a staff member’s compensation up to a certain limit if the worker chooses not to participate. The employer can also match deferrals dollar-for-dollar, up to 3 percent of the employee’s compensation for the year. The SIMPLE IRA can be payroll-deducted, and participants have a choice of investing in various mutual funds — which are comprised of stocks and bonds. Employees can contribute up to $10,000 annually plus employers match up to 3 percent — and an additional $2,000 if they are 50 years old or older. This plan requires little administrative paperwork.

401(k) Many large companies that have offered their employees pensions instead now give them the opportunity to participate in a 401(k) program. Although small businesses can set up a 401(k) program, this isn’t necessarily the best option for them, due to administrative costs. Business owners must weigh whether these costs, possibly about $1,000, would be best used for this or for some other type of contribution to employees. However, out of all of the retirement savings programs, the 401(k) will allow the business owner to invest the largest amount of money. In this plan, employees can make contributions and employers can match it up to a certain amount. Combined employer and employee’s contribution cannot exceed $42,000 ($46,000 for people who are 50 or older). Employers may deduct their program contributions as a business expense.

SEP-IRA A Simplified Employee Pension is similar to an IRA and profit-sharing. This plan is funded entirely by the employer. To be eligible, the employee must have been employed with the company for three years, must be at least 21 years old and must earn at least $450 per year. The employer must contribute for all eligible staff members. An employer may make annual contributions of up to 25 percent of compensation or as much as $44,000 for the 2006 plan year— whichever is less. They may only consider up to $220,000 for the 2006 plan year (subject to annual cost-of-living adjustments for later years). Contributions must be made in cash. Employer contributions for each eligible employee must be the same percentage of compensation for all employees. Many builders do not choose the SEP-IRA for their company. It may work well for a small company of just a few employees or a couple of owners, but often other choices work better.

RETIREMENT Continued from page 12

investment. It takes some planning and once you get started you can tweak the plan.” Financial advisers can help business owners decide what is best for them. The owner may feel more comfortable choosing a financial advisor by asking a trusted accountant they work with to recommend someone in their office. An advisor can assess the risk level the client is comfortable with, help choose the right investments for their business and personal goals, and give them an outlook of how their investments are expected to perform over the years. A financial adviser can also help a business owner choose the right plan to offer employees. Retirement programs make working for a company more attractive, show employees that the owner values them and may increase employee retention. Although business owners are required to, or often choose to, contribute to retirement plans, these investments still benefit their business’ bottom line. In some of the most common retirement plans, money an employer contributes to retirement programs for employees can be deducted from the employer’s income. Money the employer (and employees) invests grows tax free. Tax credits are available for small employers that enable them to claim a credit for part of the ordinary and necessary costs of starting a Simplified Employee Pension or SIMPLE IRA or certain other types of plans. “My advice to builders about saving for retirement is: Don’t put it off, do it now,” Elliott said. “If you want to get the advantage of compound interest on your earnings, you need to invest your money.” ▲

Keogh plan A Keogh plan is a retirement plan for the self-employed professional, or the owner of an unincorporated, typically small, business and its employees. Many companies in the building industry are incorporated, so this plan would not be an option. Contributions to Keoghs must be in cash and may be invested in a wide variety of ways, including bank accounts, stocks and bonds, mutual funds or annuities. Employers who contribute to a Keogh plan must set up Keogh plans for their employees. To qualify for the plan, an employee must work at least 1,000 hours a year and for more than three years. Employers must contribute the same percentage to their own accounts and employees’ accounts. A Keogh plan allows employers to save as much as 20 percent of their net self-employment income up to $30,000 per year, depending on the type of Keogh plan they use. In all of these plans, the money grows tax-free until withdrawn. If withdrawn before age 59, it is subject to a penalty fee in addition to the federal income taxes normally charged upon withdrawal. Some exceptions are made for 401(k) withdrawals, but investors should be very careful about discussing this with their financial advisor to make sure their reason for withdrawal fits the very detailed definition of an exception. ▲ Members Only • Keystone Builder

A SOLID FOUNDATION: Build a better future for your business

In My

View

Burying the ‘death tax’ by Congressman Joe Pitts undamentally reforming the enormous and endlessly complex federal tax code has been the talk of Washington D.C. policymakers for years. While many agree that fundamental reform is necessary, the sheer size of such an undertaking has so far prevented any significant action. But while the debate over fundamental reform continues, there is one basic step we can take right now to make taxes fairer and simpler. That step is the permanent repeal of the federal death tax. The death tax, also known as the estate tax, refers to the government’s collection of steep taxes on Americans’ property and earnings when they die. Rather than allowing assets to be passed on to the next generation as one sees fit, the federal government levies an enormous tax on that property before it can be passed on. The death tax is aptly named, as a person’s death is the only thing that can trigger the government’s ability to levy these taxes. Perhaps the best argument for doing away with the death tax is the disincentive it creates for small business success in America. Many Americans do not have to pay the death tax because there is a sizeable exemption that applies to most middle-class families. But farmers and small-business owners are often hit very hard. Farmers and small business owners often own land, equipment, or property that looks like wealth to the Internal Revenue Service. A farmer whose fields have been in the family for generations may have land that is worth a lot of money — but only if it is actually sold. When the IRS demands half that value in taxes, the only way to pay is to sell the farm. Small businesses are the engine that drives the American economy, yet the death tax is the leading cause of small business failure.

I Keystone Builder • Members Only

Studies show that because of death tax rates, 70 percent of small businesses don’t survive past the second generation. The Heritage Foundation, a Washington-based think tank, estimates that this costs the U.S. economy up to 250,000 jobs annually. And despite its devastating effect on small businesses and family farms, studies of the death tax show that it produces almost no net profit for the government due to the extremely high administrative and compliance costs. Furthermore, this tax represents an unfair double taxation on Americans as they are required to pay taxes on property and earnings at the time they are earned, and then again upon death. The facts clearly show that a permanent repeal of the death tax is in the best interest of the American family and our overall economic prosperity. All that is left to do is for Congress to act. The good news is that there is momentum toward that happening this year. I was grateful for the chance to vote in favor of ending the death tax when it came before the U.S. House of Representatives last year. Though it passed by a strong majority in the House, it stalled in the Senate, largely due to the unexpected demands of passing disaster relief legislation for the hurricane-devastated Gulf Coast. But with a demonstrated majority supporting its repeal in the House, a president in office who has voiced his support, and commitment from the Senate Majority Leader Bill Frist, R-Tenn., to bring it before the Senate, 2006 could very well be the year that we finally bury the federal death tax permanently. Rep. Joe Pitts, R-Pa., represents constituents in Chester, Berks and Lancaster counties. He serves on the Energy and Commerce Committee. ▲

On the

Hill

Large builders now have options for deposits Eminent domain bills pass Senate, PBA continues supporting Requirement to Repair and voicing concerns with realty transfer tax.

Passage of Act 3 helps large builders and their clients fter supporting its passage, PBA members were pleased House Bill 1826 was signed into law by Gov. Edward G. Rendell Jan. 6 because the new law will save money for their businesses. Now called Act 3 of 2006, it was sponsored by Rep. Thomas L. Stevenson, R-Allegheny, and amends Title 68 (Real and Personal Property) to permit builders of planned communities to obtain and maintain a corporate surety bond or irreversible letter of credit instead of posting cash in escrow. The bond or letter of credit remains in place until the builder meets obligations to homebuyers. This act benefits larger builders and developers as it reduces the cost of maintaining separate escrow accounts for customers’ deposits. Under Pennsylvania law, builders are not generally required to escrow customer deposits except in developments formed under the Uniform Planned Communities Act and may use the money to cover building costs. Now builders of planned communities will also be able to use deposits during the building process. The act strikes a balance between addressing the business concerns of large builders and protecting the customer while avoiding the administrative cost of creating escrow accounts for each customer. The legislation permits the attorney general to annually adjust the amount of a required bond based on the Consumer Price Index in Pennsylvania, New Jersey, Delaware and Maryland using 2004 as a base year. Builders and their clients in Maryland have demonstrated the benefits of a similar law for several years. Act 3 takes effect March 7.

Each PBA member should tabulate the cost of such a bond and the total deposits their business receives on an annual basis to learn whether taking advantage of Act 3 will benefit them.

PBA keeps an eye on realty transfer tax, educational impact fees While PBA supports the funding of schools, its members are concerned about one legislator’s approach to pay for public schools. Rep. Steve Maitland, R-Gettysburg, proposes a provision to allow school districts in counties that had three consecutive years of at least 0.75 percent population growth to increase the realty transfer tax and impose impact fees for schools. PBA’s government affairs committee favors solutions that spread taxes through the populace, rather than punish selected people, such as new homebuyers. The flawed concept of high-growth counties, based on a minimal population increase, contrasts with a recent study that puts school enrollment growth in perspective. This study, released a year ago from the Center for Rural Pennsylvania, paints a picture of Pennsylvania whose population continues to age and whose schools are mostly expected to show steady enrollment in coming years with an overall decline. Fewer than one-tenth of the state’s districts face brisk growth. Researchers found Pennsylvania’s total school enrollment will decrease 7 percent from 2002-12, as the nationwide enrollment swells by 5 percent. Examining 500 school districts in Pennsylvania, the center predicts 268 districts will experience moderate growth

or moderate decline (less than 15 percent in either direction) through the same decade. The projections for districts outside the moderate growth majority are chilling. Four times as many districts face a steep decline in enrollment as those that are expected to see a significant increase. Fewer than one in 10 school districts — just 45 of the 500 — will see enrollment grow by more than 15 percent through 2012. If communities chose to impose an educational impact fee or dedicated portion of the realty transfer tax, it could increase a new homeowner’s expenses by $2,000 or more. Current law allows impact fees for sewerage and road improvements, but not public schools. Members of PBA and the Pennsylvania Association of Realtors opposed efforts to increase the realty transfer tax last year. An increase would give Pennsylvania the distinction of being the state with the steepest realty transfer tax (combined state and local), which could be a major deterrent to prospective homebuyers — and employers — in Pennsylvania. Both a realty transfer tax increase and impact fees will influence the style, type and location of the home a person can afford to have built.

PBA-supported eminent domain bills pass the Senate Senate Bills 881 and 897, relating to eminent domain issues, passed the Senate unanimously on Dec. 7, 2005. These bills would benefit both the building industry and homeowners. PBA has long supported SB 881 and the basics of SB 897 but would like the language of SB 897 to be amended. Continued on page D

Each PBA member should tabulate the cost of such a bond and the total deposits their business receives on an annual basis to learn whether taking advantage of Act 3 will benefit them. Members Only • Keystone Builder

On the

Hill

ON THE HILL Continued from page C

Senate Majority Whip Jeffrey Piccola, R-Dauphin, introduced SB 881 in response to a June 2005 U.S. Supreme Court decision, Kelo v. City of New London, which ruled that governments can seize property to make room for private development projects that promise to boost the local economy. Under SB 881, the use of eminent domain is prohibited for private economic development, and the definition of “blight” is tightened. Under the current law, an area may be razed if 10 or 15 percent of its buildings have supposed blight. Piccola’s legislation would require a majority of the property in an area to be blighted in order to use eminent domain. Majority Leader David Brightbill, RLebanon, introduced SB 897, which amends Title 26 (Eminent Domain) by revising the Eminent Domain Code to provide a procedure and law to govern all condemnations of property for public purposes and the assessment of damages. The legislation provides for a procurement to condemn, which would be brought in the court of the county in which the property is located or, if the property is located in two or more counties, in the court of any one of the counties. PBA supports SB 897 but would prefer stronger protection for property owners. The association backs an amendment to Brightbill’s bill that would require any land that to be condemned for recreational purposes by eminent domain to be

identified on the municipality’s official comprehensive plan.

Requirement to Repair Bill continues to move forward HB 1467, which would benefit both builders and homeowners, continues to move forward. The bill outlines a Requirement to Repair process to encourage builders and homeowners to work out their differences concerning construction defects without going to court. Evidence from other states suggests this law would reduce constructionrelated lawsuits, hold down building costs and maintain new-home affordability. PBA supports this legislation, as similar laws proved to benefit homeowners and builders in 27 other states.

Locals should help choose primary candidates to endorse PBA is encouraging local builders associations to have meetings to decide which candidates to endorse for the primary election on May 16. All 203 seats in the House of Representatives and half of those in the Senate will be decided in 2006. Nearly all legislative seats will be contested in the primary, with many lawmakers retiring and challengers running against most incumbents. Open seats provide an opportunity for PBA members to get to know candidates and help elect candidates open to the concerns of our industry.

In late January, PBA supplied local association presidents and executive officers with a packet that includes a questionnaire and tips for interviewing candidates. PBA’s leaders hope members will discuss this information with candidates to educate them on issues important to the building industry.

Numerous legislators plan to retire after their current term Retiring legislators could change the face of the House and the Senate to be more or less supportive of the building industry. Following is a list of those who plan to retire: Representatives • Kevin Blaum (D-Luzerne) • Ray Bunt (R-Montgomery) • Gaynor Cawley (D-Lackawanna) • Tom Corrigan (D-Bucks) • Jacqueline Crahalla (R-Montgomery) • Brett Feese (R-Lycoming) • John Fichter (R-Montgomery) • Robert Flick (R-Chester) • Mike Gruitza (D-Mercer) • George Hasay (R-Luzerne) • Lynn Herman (R-Centre) • Victor Lescovitz (D-Washington) • Sheila Miller (R-Berks) • Larry Roberts (D-Fayette) • T. J. Rooney (D-Lehigh) • James Shaner (D-Fayette) • Bruce Smith (R-York) • Elinor Taylor (R-Chester) • Tom Tigue (D-Luzerne) Senators • Joe Conti (R-Bucks) • Charles Lemmond (R-Luzerne) • Noah Wenger (R-Lancaster) ▲

I Keystone Builder • Members Only

Association N e w s

ASSOCIATION NEWS Continued from page C

PBA members enjoy reception during Orlando show PBA President Brad Elliott welcomes members to the reception.

Right: Ray Venema (left), 2006 Northcentral regional legislative officer, and a member of West Branch Susquehanna BA in Williamsport; speaks with Arnold Minnick, member of West Branch Susquehanna BA in Williamsport; and PBA staffer Lou Biacchi.

Brad Elliott (center), 2006 PBA president and member of HBA of Bucks and Montgomery Counties; speaks with George Kiriakidi (left) and Joe Gartner, both from that associaton. Kiriakidi recently completed his term as president, while Gartner is the 2006 president.

Above: Mark Kaplin (left), member, HBA of Bucks and Montgomery Counties; Lou Biacchi (center), PBA’s governmental affairs director; and Bo Kasal, Hankin chair and director, Pennsylvania Housing Research Center; meet at the reception.

Walt Nyman (left), executive officer at West Branch Susquehanna BA in Williamsport; enjoys refreshments with members of his association, Melody and Bill Harrison. Bill is treasurer of West Branch Susquehanna BA; Melody is president of WBSBA’s Women’s Council.

BA’s reception Jan. 10 during the International Builders Show in Orlando, Fla., had a fantastic turnout again this year, as 200 members and guests gathered at the Sheraton World Resort near the Orange County Convention Center where the show was taking place. Members enjoyed great food and conversation, and the highlight of the evening was comments from 2006 PBA President Brad Elliott, who lent his personal touch to the event. The reception proved to be a great kick-off to another jam-packed builders show, which started the next morning with a keynote address from former Secretary of State Colin Powell. PBA thanks Federal Home Loan Bank of Pittsburgh for helping to sponsor the event, as well as these generous co-sponsors: Central Susquehanna Builders Association, HBA of Bucks/Montgomery Counties, HBA of Chester/Delaware Counties, BIA of Lancaster County, BA of Washington County, Wayne County Builders Association and West Branch Susquehanna Builders Association. ▲

March/April 2006 • Keystone Builder 15

Exploring Energy Series

Part Three: Solar water heaters The sun provides free fuel for heating water by Nikki Brand ater heating accounts for 16 percent of household utility bills, making it the third-largest energy expense for homeowners, according to the U.S. Energy Department. Solar water heaters help save homeowners on energy costs, while a new tax credit offsets upfront costs. Solar water heaters are an option for people who have an unshaded, south-facing location (often a roof) on their property. Solar units can be installed on the roof to blend with the architecture of the house. Noah Kaye, spokesman for the Solar Energy Industries Association, said more than 1.5 million homes and businesses in the United States feature solar water heating systems.

Solar water heater options

Appealing to the homeowner When clients consider what they would like in their dream home, installing a solarpowered water heater may not be their first idea. Builders may promote solar water-heating systems to clients by educating them about long-term savings and available tax credits. Environmentally conscious homeowners will also appreciate learning the “green” option.

▲

Not all types of solar water heaters function well in the Pennsylvania climate. Systems labeled “passive” sound appealing because they don’t use any electricity. However, they pose the threat of freezing during the cold winters. “Active” systems use an electric pump, which uses less energy than heating elements in an electric water heater. The most common active system in Pennsylvania homes is an indirect or closedloop system. In indirect circulation systems, electric pumps circulate a non-freezing, heattransfer fluid through solar collector panels that are usually placed on a roof, and then circulate the fluid through a heat exchanger. The heat exchanger absorbs the heat from the heat-transfer fluid and transfers the heat to water in a storage tank. Heat-transfer fluids, such as antifreeze, protect the solar collector from freezing in cold weather. Some people choose to install a solar electric pump so that when there are enough sun rays, no electricity is needed at all to operate the pump. In these situations, an electric pump will still be needed as a back up when there isn’t enough solar energy to operate the pump. Another system that may be used in Pennsylvania is a water heater with evacuated-tube solar collectors. While efficient, this option costs more than a closed-loop system. This type of water heater features parallel rows of transparent glass tubes. Each tube and fin of the collector is contained within a glass

tube from which all the air has been evacuated. This evacuated tube is used because air carries heat from the hot surface of the tube to the cooler surface of the glass to accelerate heat loss by convection. When the air is eliminated, convective heat loss is eliminated. To minimize radiant heat loss, the tube is covered with a selective surface.

Solar water heater Annual operating cost: $50 Storage capacity: 80-120 gallons Life Expectancy: 20-30 years Increases home equity 25 percent return on investment Energy from the sun will always be free

Standard water heater Annual operating cost: $500+ Storage capacity: 40-50 gallons Life Expectancy: 8-12 years No added value to home equity No return on utility payments Utility companies/the government may raise energy prices A federal personal tax credit took effect Jan. 1 for the purchase and installation of a solar water heater. The credit covers 30 percent of the cost of the unit and installation, with a limit of $2,000. The system must be certified by Solar Rating and Certification Corporation or by a comparable entity endorsed by the state. At least half of the energy used to heat the home’s water must be solar in order for the expense to be eligible for the credit. This credit will be available through 2007.

I Keystone Builder • March/April 2006

The biggest financial incentive to installing a solar water heater is the amount of money it will save the homeowner on an ongoing basis — a concern that has risen with the increasing cost of energy. Marcus Sheffer, president of Energy Opportunities, said although more electricity may be used to heat water in less sunny winter months, solar water heaters sometimes operate solely on sun rays during some sunny summer days, so the cost of operation between summer and winter balance each other to create an overall savings in energy bills. “Heating water is becoming a larger piece of the pie when it comes to energy bills,” said Mark Fortney, director of the Pennsylvania Housing Research Center. “People aren’t using more hot water, but other parts of the home are becoming more efficient — better insulation, better windows — making heating water more expensive.” Andy Lau, associate director of the Center for Sustainability at Penn State University, said studies indicate that solar water heaters are especially cost-effective for homes in southeastern Pennsylvania, because homeowners experience higher electric bills and have more sun exposure than other parts of the state. Another key asset to installing a solar water heater is that they have can have two to three times the life span of a standard water heater. They are also low maintenance. Basic maintenance usually includes checking the antifreeze solution every year, topping it off when necessary and replacing it every five years. “An added bonus of having a solar water heater is that during power outages, homeowners still have some hot water,” Sheffer said. “If people install a solar electric pump, it can run when there is no electricity.” Today solar panels are often installed flush with the roof and make for less of an eyesore than those used during the last push for solar water heating in the early 1980s. Sheffer encourages builders to show customers newer, more attractive options. Local certified solar water heater installation companies can provide a builder’s client with information about solar water heaters and photos of system options. Builders can benefit from educating clients about such a money-saving and efficient option for heating their new home’s water. ▲

PBA Premier Partners invest in the future of your association ight companies have joined the Pennsylvania Builders Association in a unique partnership that supports the activities of the association while providing valuable exposure for each of the partnersâ&#x20AC;&#x2122; companies. This program, which you may have seen featured on the PBA web site or in the last issue of Keystone Builder, demonstrates each partnerâ&#x20AC;&#x2122;s commitment to the industry. PBAâ&#x20AC;&#x2122;s partners have shown their support with sponsorships of $10,000 to $25,000. Depending on their level of sponsorship, partners gain valuable exposure to the associationâ&#x20AC;&#x2122;s members, for example, more than 200,000 exposures in one year for Gold Level Sponsorship. This exposure stems from signs displayed at PBA events, Keystone

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Builder advertising, PBA fax cover sheets and the web site plus other opportunities at meetings. For PBA members, Premier Partners are companies that are worth considering for future projects. They may prove to earn your trust or be able to help save you money. With their PBA involvement, your associationâ&#x20AC;&#x2122;s leaders think they are worth a chance to bid for your business. Finally, PBA asks all its members to consider referring their suppliers to Premier Partners. Contact Bill Lapitsky at pbapremierpartners@pabuilders.org or call him at (800) 692-7339, ext. 3030. â&#x2013;˛

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March/April 2006 â&#x20AC;˘ Keystone Builder

I 17

Planning your

2006 Taxes Whether you have an existing business or are just starting one, the IRS wants to help you understand and comply with the tax laws that affect your business. By recognizing the significance of these issues, small construction business owners can properly file their tax returns and avoid costly problems.

ith the current tax filing season quickly coming to a close, there’s no better time to start planning for next year’s tax filings. If you experienced “sticker shock” with this year’s tax bill, the Internal Revenue Service has identified several issues that may cause problems for the owners of small construction businesses. This article is intended to make you aware of these issues and to provide you with information and help you avoid pitfalls along the way. These issues include: • Accounting Methods • Capitalization of Indirect Costs to LongTerm Contracts • Independent Contractor or Employee Classification Whether you have an existing business or are just starting one, the IRS wants to help you understand and comply with the tax laws that affect your business. By recognizing the significance of these issues, small construction business owners can properly file their tax returns and avoid costly problems.

Accounting method issues Accounting methods used in the construction business are not always the contractor’s

choice. What are these accounting methods and how do they differ? An accounting method is a set of rules to determine when and how income and expenses are reported. It includes not only the overall method of reporting transactions but also the accounting treatment of material, or significant dollar items. Examples of accounting methods are cash receipts and disbursements, accrual, and modified accrual which combines both cash receipts/disbursements and the accrual methods. Some contractors who use the cash method of accounting may be required to use an accrual method. Whichever method is elected, it must clearly reflect income and expenses for the period reported on. Whether a method is permissible or not depends on a number of factors, such as the type of business entity, the business activity, gross receipts and the existence or absence of merchandise as an income-producing factor in the business. If your business operates as a C corporation with gross receipts in excess of $5 million, you generally are required to use the accrual method of accounting. If an inventory method is required because merchandise (or materials) is an income-producing factor in the business, generally an accrual

For help and resources from the IRS • Order free copies of all IRS forms and publications by calling 800-829-3676 (800-Tax-Form). • Call the Small Business & Specialty Tax Help Line at 800-829-4933. • Access the IRS website for federal tax forms, publications, tax law changes and other tax information for individuals and businesses on the Internet at www.irs.gov. • For more information specific to the construction industry, go to www.irs.gov/smallbiz, click on “Industries/Professions” under “Contents” and choose “Construction.”

I Keystone Builder • March/April 2006

method must be used for purchases and sales transactions.

Cost issues Annually, contractors are required to allocate indirect job costs to their long-term contracts unless the code or regulations provide otherwise. Whether contractors are required to capitalize these allocable job costs or are permitted to deduct them as allocable job costs depends on the contractor’s method of accounting for long-term contracts. Allocable job costs include those direct costs incurred because of the contractor’s construction projects such as repairs, equipment maintenance and rentals, utilities at the job site, depreciation on construction equipment, labor and related payroll taxes, and workers’ compensation insurance. Non-allocable job costs include expenses for unsuccessful bids and proposals, marketing, selling and advertising, and general and administrative expenses. These indirect costs are exempted from the cost allocation requirements. In general, contractors using the percentage of completion method of accounting are required to allocate indirect job costs to their long-term contracts. Contractors using the completed contract method of accounting are required to capitalize indirect job costs allocated to long-term contracts until the contract is completed. Many contractors who use the completed contract method of accounting overstate deductions because they do not properly allocate costs to long-term contracts. Under the completed contract method, income or losses are reported in the year in which the contract is completed. In addition to direct materials and labor costs, all indirect costs incurred by reason of a long-term contract or those directly benefiting the long-term contract must be allocated, or capitalized to that contract. As long as that contract has not been completed and accepted, these costs must not be deducted as current period costs. Some indirect costs may benefit both the long-term contract and other business activities. These costs will require a reasonable allocation between other business activities and the long-term contract. Suggested allocation methods are specific identification or the use of ratios based on direct costs, hours or other units of measure. ▲

Tax preparation hints hen completing your corporation’s tax return, it is important to properly classify the business that provided your principal source of income. The codes for the principal business or professional activities classify sole proprietorships by the type of activity they are engaged in to facilitate the administration of the Internal Revenue Code. These six-digit codes are based on the North American Industry Classification System (NAICS). Line A of Form 1040 Schedules C and C-EZ requires a principal business or professional activity description to be entered. Select the category that best describes your primary business activity within the construction industry (refer to the table below). If you owned more than one business, you must complete a separate Schedule C or Schedule C-EZ for each business. Line B of Form 1040 Schedules C and C-EZ also requires a principal business or professional activity description to be entered. However, this code should represent the activity that best identifies the principal source of your sales or receipts (i.e. your principal customers or clients).

Professional business or professional activity codes for the construction industry Construction of Buildings 236200 Nonresidential building construction 236100 Residential building construction Heavy and Civil Engineering Construction 237310 Highway, street, and bridge construction 237210 Land subdivision 237100 Utility system construction 237990 Other heavy and civil engineering construction Special Trade Contractors 238310 Drywall and insulation contractors 238210 Electrical contractors 238350 Finish carpentry contractors 238330 Flooring contractors 238150 Glass and glazing contractors 238140 Masonry contractors 238320 Painting and wall covering contractors 238220 Plumbing, heating and air-conditioning contractors 238110 Poured concrete foundation and structure contractors 238160 Roofing contractors 238170 Siding contractors 238910 Site preparation contractors 238120 Structural steel and precast concrete construction contractors 238340 Tile and terrazzo contractors 238290 Other building equipment contractors 238390 Other building finishing contractors 238190 Other foundation, structure, and building exterior contractors 238990 All other specialty trade contractors

March/April 2006 • Keystone Builder

I 19

Caught in the web

NAVIGATING the PBA web site

Hot spots While the PBA web site is full of great information, there are some areas that are a must-see for our members. Updated regularly, the government affairs section is found in the members-only section of the site, allowing members exclusive information on the industry’s hottest topics. This is the best way for busy members to keep informed about important legislative and

regulatory issues that will ultimately affect their businesses. Perhaps the most requested area of the PBA web site is the model building contract. Listed under the Resources section, this model agreement is provided for use by members solely as a sample in developing, in consultation with the member’s own legal counsel, a form agreement that is tailored to meet the needs of the member’s business, and to ensure compliance with all legal requirements in effect at the time and at the place the agreement is to be used.

Key points of interest Knowing the key players at your association as well as knowing who to contact at PBA, are important components of PBA web site. The site offers links to local associations’ web sites, listing of senior officers with pictures and background, directions to the association’s headquarters and contact information for all PBA staff.

Getting started Are you ready for all the PBA web site has to offer? Getting started is easy. Members can register with PBA to access the membersonly section of the site. To register, please contact Eric Wise at (800) 692-7339, ext. 3003, or via e-mail at ewise@pabuilders.org. Members will receive their first-time login code and a link to choose their own username and password. It’s never been easier to get on the web and utilize your membership dollars! Look to future issues of Keystone Builder magazine for more information about the new and improved PBA web site. ▲

The PBA web site is organized with special sections for members, potential members and consumers. Members can gain access to the latest industry news and information, nonmembers can learn how to join the association and the many benefits of membership, and consumers can learn how to hire a reputable contractor as well as other important information about building or remodeling a home. 20

I Keystone Builder •March/April 2006

Curious about what the PBA web site has to offer? Here is the list of topics that can be found at www.pabuilders.org.

General

About the PBA PBA Staff E-mail Addresses Register for the PBA Board Meeting Directions to PBA Headquarters PBA Premier Partners Membership Information Board of Directors and Committees Calendar of Events Find a local builders association How to hire a reputable contractor Housing Starts Uniform Construction Code Order Discounted International Code Books Online PBA Pressroom Senior Officers Sponsorship Opportunities

Governmental Affairs Governmental Affairs Priorities Find Your Legislator Hammers and Gavels Club Water Resources Stormwater Information Regulatory Information

Committees

Bylaws Committee Executive Committee Executive Officers Committee Governmental Affairs Committee Health Trust Housing Finance Committee Housing Research Committee PaCAH Committee Past Presidents Committee Personnel Committee PR/PA Committee Workforce Development

Media

Press releases and op-eds Consumers Home Buyers Guide Homeowner Information How to Hire a Reputable Contractor Request a How to Hire a Reputable Contractor Brochure

Your map to the PBA web site

lthough you might not realize it, your PBA membership entitles you access to the most up-to-date, vital information about your industry — all from the comfort of your own home or office. Where can you get this information? From the PBA web site: www.pabuilders.org. The site is new and improved, so if you’ve accessed the site in the past, you need to check out all the great information that is now in a user-friendly format. If you’ve never been to the web site, there’s no better time to get started! The PBA web site is organized with special sections for members, potential members and consumers. Members can gain access to the latest industry news and information, nonmembers can learn how to join the association and the many benefits of membership, and consumers can learn how to hire a reputable contractor as well as other important information about building or remodeling a home. You can even shop on the site at one of PBA Mall’s 65 online stores, offering a variety of products and services. PBA’s own store offers discount prices on the construction code books you need, including the new 2006 editions, which will be available in mid-March.

Contact Jeff Pinwar at (800) 935-1592 ext. 118 or jpinwar@printcomm.com

March/April 2006 â&#x20AC;˘ Keystone Builder

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Builder Case Study

Hanover Homes N

H T

Engineer develops a passion for the building industry If you had told me 30 years ago that I would end up as a builder, I would have laughed at you. But, every day when I wake up, I know there is a new challenge brewing somewhere, and I will be able to find a solution. — Joe Peterson, Hanover Homes North Corp.

by Jennifer McDermitt uilders often develop an interest in the industry through family influences, high school job opportunities or exposure during their post-secondary education. Joe Peterson, owner of Hanover Homes North Corp., entered the business in an unconventional manner. He credits the course of his career to a twist of fate. After earning a degree in mechanical engineering and working in the automotive and aerospace industries, Peterson was asked to help with his father-in-law’s building company as his father-in-law recuperated illness. Peterson thought the work would be temporary. “If you had told me 30 years ago that I would end up as a builder, I would have laughed

I Keystone Builder • March/April 2006

at you,” Peterson said. “But, every day when I wake up, I know there is a new challenge brewing somewhere, and I will be able to find a solution. It’s that kind of excitement and variety that I lacked in my career as a mechanical engineer, and it’s what keeps me loving what I do.”

Long road home Throughout Peterson’s childhood, he expressed an interest in architecture. When he entered college in the 1970s, he intended to study architecture until a professor steered him toward mechanical engineering. Peterson’s first professional job was as an engineer for a company that made parts for the automotive industry. The company’s Continued on page 24

www.scrantoncraftsmen.com E-mail: scrantoncraftsmen@epix.net

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BUILDER CASE STUDY Continued from page 22

comptroller advised him to study accounting and business. Taking his mentor’s advice, Peterson quickly gained an understanding not only of technical issues, but also of what it takes to run a successful business. Eventually, Peterson left the company for a different position, this one in the aerospace industry. “I had a real desire to live on the West Coast,” Peterson said. “I worked for a company where I was able to work on Apache helicopter program at Hughes Aircraft.” Building homes in the Lehigh Valley was the furthest career from his mind. Peterson was still in California when he proposed to his wife, Eve, who was also from the Lehigh Valley. The couple moved back to the area in 1982 to be closer to family, and they found themselves in a struggling economic environment, with interest rates creeping over 18 percent and the unemployment rate the highest it had been since the depression. The collapse of the steel industry — and the Lehigh Valley with it — created a difficult environment for builders. “Interest rates were terrible then, and no one was working,” Peterson said. “When Eve’s father asked me to help out at his company, Hanover Homes, I thought, why not?” He embraced the challenge of learning a new trade, much the way he had when urged to study business as a supplement to engineering. “I didn’t even know what a two-by-four was at that time, so I worked in all departments and all areas of the business to learn,” he said.

Going their own way When Peterson joined Hanover Homes, it was run by eight family members, but in 1995, they decided to separate and create two distinct companies: Hanover Homes and Hanover Homes North Corp., the latter company now run by Peterson. Peterson says it was a big transition with the new company. “At one time when we were one company, Hanover Homes built in four states and constructed over 400 homes a year,” said Peterson. “Today, we build about 100 homes a year solely in Pennsylvania, so it’s really a different company all together.”

I Keystone Builder •March/April 2006

Hanover Homes North evolved since it first became an independent entity. Once strictly a custom homebuilder, Peterson’s company has branched out into spec homes, retirement communities and developments, as well as some light commercial projects including the complete renovation of a warehouse into a showroom. “I really wanted to diversify the company, and I hope to find other areas to get into as well,” said Peterson. Because his early interest in architecture and engineering taught him the importance of professional design, Peterson works closely with architects and engineers on all projects. One of the projects Peterson is most proud of is an active residential retirement community where he built a 6,500-square-foot clubhouse and 100 residential units. The community later received accreditation from the state Insurance Department as the first Continuum of Care Retirement Community. “It was pretty exciting doing that project, because it was like nothing I had ever done before,” he said. “I had to deal with the township for water and sewer issues, and I really liked the variety and challenges that came with that kind of work.”

Maintaining the tradition of excellence Hanover Homes started in 1959, and many of the employees at Hanover North have been with the company longer than Peterson. “The employees and subcontractors are the lifeblood of the business,” Peterson said. “We keep them happy and treat them like partners. Many of the subcontractors who work with us today are second generation and learned the trade from their fathers, who also worked for us.” Peterson is concerned that, as these subcontractors start retiring, there won’t be a qualified pool of people to replace them. “It doesn’t seem like young people are interested in the trades today, and that really concerns me for the future,” he said. Peterson has belonged to his local association, the BIA of Northeastern Pennsylvania, for nine years, and he attends PBA events and meetings. He said, “I get more and more involved every year. I just finished my second year as president at my local, and this year I will serve as regional vice president at the state level. I have met a lot of great people at the association, and made a lot of important connections.” In 2001 Peterson was named Builder of Year by the BIA of Northeastern Pennsylvania and has also received awards for professional excellence from the Pocono Mountain Builders and Lehigh Valley BA. He now belongs to seven different local associations. “I join the local whenever I build in a new area. I think it is important to get as involved as you can with associations, because they do so much for our industry.” That’s a telling statement from someone who never intended to become a builder in the first place, but Peterson said the industry has won him over. “I love what I do, and I feel very fortunate to have found this career,” he said. “Even after all these years, I am excited about the many avenues we can still take our company.” ▲

For more information, please contact your field service director …

Arlene Kerner (717) 730-4380, ext. 3020 akerner@pabuilders.org

Doug Meshaw (717) 730-4380, ext. 3007 dmeshaw@pabuilders.org

Rob Milne (717) 730-4380, ext. 3015 rmilne@pabuilders.org

f you don’t know the field service director for your region, please call the PBA switchboard at (800) 692-7339 for assistance. Do you know who the PBA field service director is for your region? You should, because when you need help of any kind on building matters, your field service director is your best resource for getting quick and accurate solutions to your problems. PBA’s three field service directors routinely handle ques-

tions from members about such topics as building to the standards of the Uniform Construction Code, identifying whether a parcel of land is likely to have endangered species concerns, help working with a local legislator, clarification on the details of a state law or regulation, and so much more. No challenge is too big or too small. Member service responsibilities across the state are divided between the association’s three field

service directors as indicated by the different colored regions on this map. To determine the field service director for your county, just use the color key provided. Phone numbers and email addresses are given for each field service director. Access to these highly knowledgeable field service directors is another benefit of your PBA membership that can save you time, money and lots of frustration. It’s a benefit you don’t want to overlook! ▲

PRESIDENT’S MESSAGE

counter Brookings. It is now our duty to get some of these realistic ideas implemented.

because they’re not involved. Second, without your involvement, there is no PBA. We, the members, are PBA. We identify the issues, we staff the task forces, we work together to get the job done — all of us from every corner of the state. I ask you to keep in mind that, without the help of your fellow members from around Pennsylvania, we would get little accomplished in Harrisburg. It is actually their relationships with their representatives that give all of us our political strength. We help ourselves when we help each other. So I urge all of our members to take the next step and get more involved in PBA. You won’t regret it. It’s your association. Now imagine all it could be with your inspired participation. ▲

Continued from page 6

Licensure Board to fine builders who were designing homes for their clients. We worked to amend the Architects Licensure Law in 1998 to exclude home design. With this change, homebuilders may continue to offer this service to their customers. Imagine your business without PBA. Imagine living in a state where it’s commonly believed that suburban development caused Pennsylvania’s pitiful national economic ranking. It’s hard to imagine anyone actually believing this, but it wasn’t just anyone making this assertion — it was the well-known Brookings Institution. PBA leadership pulled together a coalition, commissioned our own primary research and published a well-received report to

Are you asking the right question? Do you ask yourself, “What has PBA done for me lately?” I answer you this way: first, imagine what doing business in this state would be like if PBA didn’t take these actions and others over the last 50 years. Then imagine life in the future if we don’t work together to keep our industry strong and profitable. But even more importantly, let me suggest that you instead ask, “What have I done for PBA lately?” First, I would venture that those who ask what PBA has done for them don’t know,

March/April 2006 • Keystone Builder

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Builders

News Briefs

Past the interview: Learn more about job candidates, improve management of existing staff ould you like to find out more about a potential employee’s communication style and how a person might fit in your company? PBA is now offering online personality assessments through its web site. Employers will be able to better utilize current staff and identify strengths of new employees through detailed personality assessments. Available for purchase through the association’s web site, these assessments include an online questionnaire and a detailed summary report that is provided to the company and the person taking the test. Results show the person’s personality style using DISC personality assessments — the classic, research-based assessments that people have used for decades to improve their relationships, work productivity and communication skills. After you order an assessment, PBA will send you a link to the web site questionnaire with a unique code for using the site. Assessment results are sent shortly after they are completed. The subject of the assessment always receives a copy of the report. If a company orders reports for its employees, management may designate a contact person who will receive the reports for all employees. Visit PBA’s web site at www.pabuilders.org or call Eric Wise at (800) 692-7339, ext. 3003, for more information.

PBA-nomination earns John Perzel national honors from NAHB The National Association of Home Builders this week recognized John M. Perzel, R-Philadelphia, Pennsylvania’s Speaker of the House, with the State Official of the Year award for his commitment to homebuilding in Pennsylvania. Each year, NAHB’s State and Local Government Affairs Committee honors state and local public officials for their support of housing. Perzel was one of four legislators in the country to receive this year’s award. The PBA nominated Perzel for this award. “John Perzel has long recognized the importance of the housing industry and its positive contribution to Pennsylvania’s economy,” said 2006 26

PBA President Brad Elliott. “It’s appropriate that he is being cited with this national award in recognition of his support for policies that promote a healthy building sector, the construction of affordable housing and continued job growth for the state he so ably serves as House Speaker.” NAHB honored Perzel on Jan. 11 at an awards breakfast held in conjunction with NAHB’s International Builders’ Show in Orlando, Fla.

through its web site. Classified ads are accepted for the following: real estate for sale, real estate wanted, vehicles/equipment for sale, vehicles/equipment wanted, services available, building supplies, business opportunities, educational/training opportunities and land exchange. Ads are available at an introductory rate of $29 for four weeks. Visit PBA’s web site at www.pabuilders.org/classifieds.

Former PBA member killed in Iraq

PBA merchandise available online

Lt. Col. Michael E. “Mack” McLaughlin of Mercer was killed Jan. 5 in combat while serving with the U.S. Army in Ramadi, Iraq. McLaughlin, 44, was a former member of the Mercer County Builders Association and the president of MARC Builders in Mercer. Surviving are his wife, Tamera Fedele McLaughlin, and his daughters, Ericha and Erin.

2006 PaCAH Event promises fun All Aboard! This year’s PaCAH event will be bigger and better than ever! Mark your calendar for Friday, July 28, for a Jimmy-Buffett-style riverboat cruise aboard the Gateway Clipper. The event will be held as part of the July board of directors meeting in Pittsburgh. More information to follow as it becomes available.

Plan to attend the Three Rivers Builders Show Mark your calendar for the Three Rivers Builders Show, to be held at the David L. Lawrence Convention Center in Pittsburgh on Thursday, Sept. 28 and Friday, Sept. 29. The show will feature a busy show floor with the industry’s latest technology and developments, as well as informative seminars to help improve your business. PBA joins the Builders Association of Metropolitan Pittsburgh and NAHB in sponsoring this event. Watch for more information from PBA.

Reach other members through PBA’s Online Member Exchange PBA recently launched a classified advertising module, the PBA Member Exchange,

I Keystone Builder •March/April 2006

Members may purchase official PBA merchandise through the PBA online store. Check out the PBA clothing, mugs, tote bags and other merchandise at www.cafepress.com/pabuilders. Products feature the PBA logo, sometimes coupled with the slogan “Building Today for a Better Tomorrow.” The store is also linked from PBA’s web site.

Builders need to stay on top of code changes affecting heating/cooling systems Central air conditioning systems and heat pumps will be held to tighter energy standards that took effect Jan. 23. These federal Department of Energy regulations set minimum efficiency ratings at SEER 13 for cooling and HSPF 7.7 for heat pump heating. The regulations apply to new residential heating and cooling equipment manufactured in the United States or imported for use within its borders. Builders and remodelors may install equipment built under the older standards in existing or new homes after the deadline. Equipment that does not meet the new standards may not be used in “tradeoffs” to meet energy standards. REScheck 3.7 Release 16 must be used after Jan. 23. Download the update for free at www.energycodes.gov.

Huntingdon County BA sponsors its first home show Huntingdon County Builders Association and the county’s chamber of commerce will sponsor the Raystown Lake Region Home and Garden Show, slated for April 22 and 23. Please call (814) 643-1110 for information about exhibition and sponsorship opportunities at the show. Visit the show web site at www.raystownhomeshow.com.

may apply for $500 Padgett Scholarships to attend the college of their choice. Visit this web site for information www.smallbizpros. com/newsite/scholar.htm.

Do you know someone who should be receiving TradeSecrets? PBA’s TradeSecrets offers valuable industry and association news to more than 2,800 members through biweekly e-mail updates. To expand the publication’s reach, PBA staff are working to gather members’ e-mail addresses during regional meetings and other events. Members may request to be added to the distribution list by sending e-mail to Eric Wise at ewise@pabuilders.org or by phone at (800) 692-7339, ext. 3003. View TradeSecrets online at tradesecrets.pabuilders.org.

Scholarships available for children of ‘small business’ owners High school seniors whose parents own a small business (with less than 20 employees)

PBA membership opens to employees of member firms

Builders may face fines for dodging federal regulations Federal regulators estimate that as many as 70 percent of Pennsylvania’s builders fail to comply with environmental requirements. Inspectors will continue to crack down this year. Avoid costly fines by keeping up to date on stormwater regulations that prevent erosion and sedimentation. PBA continues to update its regulatory information, available through the government affairs link on the PBA web site, www.pabuilders.org.

Interested in advertising in

Keystone

Official publication of the Pennsylvania Builders Association®

b u i l d e r Call Jeff Pinwar at 800-935-1592.

PBA membership has been opened to thousands of workers in the construction trades as the organization created a new affiliate member category. PBA’s board of directors voted to amend the Article IV of its bylaws during its November meeting. Affiliate membership allows employees of current PBA members to access PBA member benefits for $25 per year. Benefits will include a subscription to PBA’s Keystone Builder magazine, access to member-only sections of the PBA web site, and eligibility for service on PBA committees and task forces in non-leadership positions. For more information, contact David Martin at (800) 692-7339 ext. 3002, or via e-mail at dmartin@pabuilders.org. ▲

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