Construction Outlook September 2014 by Ucane

A publication of the Utility Contractorsâ&#x20AC;&#x2122; Association of New England, Inc.

SEPTEMBER, 2014

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IN THIS ISSUE

OFFICERS President AL MORTEO FED. CORP. President Elect TONY BORRELLI Celco Construction Corp. Treasurer JOHN OUR Robert B. Our Co., Inc. Secretary PAUL SCENNA Albanese D&S, Inc.

BOARD OF DIRECTORS MARCELLA ALBANESE Albanese Bros., Inc. JEFF BARDELL Daniel O’Connell’s Sons, Inc. VINCENT BARLETTA Barletta Heavy Division NICK BIELLO J. D’Amico, Inc. KEVIN COLE J. F. White Contracting Co. STEVE COMOLETTI P. Caliacco Corp. STEPHEN J. CONNOLLY ATS Equipment, Inc. MAUREEN DAGLE Dagle Electrical Const., Corp. THOMAS DESCOTEAUX R. H. White Const. Co., Inc. ALEX DUNN Travelers JERRY GAGLIARDUCCI Gagliarducci Construction, Inc. MARCO GIOIOSO P. Gioioso & Sons, Inc. BILL IRWIN C.J.P. & Sons Const. Co., Inc. PHIL JASSET Honorary Board Member RICHARD PACELLA, JR. R. M. Pacella, Inc. BRIAN RAWSTON J. Cashman, Inc. KENNETH STEVENS A. H. Harris & Sons, Inc. DAVID ZOPPO R. Zoppo Corp.

KLAYMAN ANNE Executive Director

3 President’s Message:

Nation’s Survival Attacked from Underground

7 Legislative Update: • • • •

Governor Patrick Signs Economic Development Legislation Four Ballot Questions Appearing on November’s Ballot Commonwealth to Hold Tax Amnesty Democrats Coakley, Kerrigan, Healey, & Goldberg Will Face Republicans Baker, Polito, Sullivan, & Heffernan in General Election

17 UCANE Interview:

Mayor Martin J. Walsh, City of Boston

20 MWRA Infiltration/Inflow Local Financial Assistance Program 25 Legal Corner:

Governor Patrick Signs Bill Capping Retainage on Private Projects at 5 Percent

31 Water and Sewer Volcano Ready to Blow 39 Save the Date...UCANE’s 60th Gala Banquet 41 Environmental Viewpoint:

The Expanded Definition of “Waters of the United States” EPA and Corps Rule Proposal

42 Making the Case for Infrastructure Investments 49 Federal Advocates Inc. August Insights 55 The McCourt Foundation: Tour de South Shore 57 Financial Management:

• Passive Investing is Moving Up • Inherited IRAs in Bankruptcy • Deducting Foreign Business Travel

Editor: Anne Klayman, Associate Editor: Suzanne Savage, Graphic Designer: Sherri Klayman Construction Outlook Chairman: Al Morteo Editorial Board: Al Morteo, Tony Borrelli, John Our, and Paul Scenna CONSTRUCTION OUTLOOK published monthly by the Utility Contractors’ Association of New England, Inc., 300 Congress Street, Suite 101, Quincy, MA 02169; Tel: 617.471.9955; Fax: 617.471.8939; E-mail: aklayman@ucane.com; Website: www.ucane.com. Statements of fact and opinion are those of the authors alone and not necessarily those of UCANE and the Construction Outlook editorial board and staff. Subscriptions are included in dues payments for UCANE members. Presorted Standard postage paid at Abington, MA. POSTMASTER, please send form #3579 to Construction Outlook, Crown Colony Office Park, 300 Congress Street, Suite 101, Quincy, MA 02169.

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Nation's Survival Attacked from Underground For centuries, canaries were the first line of defense for miners working below ground where poisonous gases were an ever-present threat to life. Above ground, where we live and work, raise families, and enjoy our leisure time, we have also had an early warning system to protect our way of life, except few of us realize that it even existed.

imply stated, the most precious of our natural resources, water—its purity and its availability—is quickly becoming the litmus test for our standard of living and ultimately our survival. It may be difficult for the majority of Massachusetts’ residents to relate to our nation's problems surrounding the storage, protection, and supply of drinking water. For decades, the MassDEP, MWRA, and BWSC have capably managed our states water resources and provided millions of residents with the highest water quality in the nation. Residents of most other states just aren’t as fortunate. Rather than planning for the future by investing in reservoirs for water storage and surrounding them with thousands of protected acres of land, tens of millions of citizen’s use treated river water as their primary drinking water source. As rivers become more polluted, their source for drinking water becomes less reliable and less palatable. A review of recent articles pertaining to our nation's water issues shows a decline in the ability of our aging underground water and sewer infrastructure systems and treatment facilities to meet today's challenges. The stories range from 100-year-old water mains failing in the East, to the severe water restrictions caused by drought conditions in the West. Too much rain in some areas, and not enough rain in others, has revealed severe weaknesses in our systems. Pipe age is certainly a factor, but so is accidental pollution of our waterways... rivers, lakes, streams, bays, and harbors.

SEPTEMBER, 2014

In July of this year, the U.S. EPA announced a “Clean Water Act” settlement with the East Bay Municipal Utility District which requires the District to spend $1.5 billion over a 21 year period to "access and upgrade" 1,500 miles of sewer infrastructure to eliminate millions of gallons of sewage discharging into San Francisco Bay. In August, after three days of searching, teams discovered a broken 24-inch water main near the Bay City, MI wastewater treatment plant. The city was under a water use emergency as 20 million gallons of water drained into a 36-inch storm drain pipe that ultimately discharged into the Saginaw River. In Detroit, MI, a severe rainstorm overloaded their 108-inch sewer line causing manhole covers to pop off resulting in extensive flooding of public roadways. A 2001 study had estimated that the city needed $30 billion in sewer upgrades. In Milwaukee, WI, the city's environmental office released a feasibility study, which would use vacant blighted properties as storm water cisterns. In New Jersey, the water and sewer problems were classified as "immense". The Garden State projected $40 billion to fix the aging water infrastructure, including $17 billion for wastewater treatment; $16 billion for storm water issues; and $8 billion for drinking water improvements. In 2012, Hurricane Sandy showed many weaknesses in the system when power was lost to wastewater treatment plants causing billions of gallons of raw sewage to flow into waterways. The state estimated that at least 20 percent of the drinking water systems are over 100 years old and plans to continued on page 5

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President’s Message continued from page 3 spend $1.25 billion next year to make upgrades. And, in California, the state legislature is proposing regulations to police water usage because of severe droughts. Yet, these stories are just the "tip of the iceberg" and should be taken as a warning of the extent and scope of future problems. The underground water and sewer "canary" is definitely showing signs of imminent danger to our society and our standard of living. But, are we taking the warning seriously? From the delays in finding a solution, it seems apparent that the problems are so big and so expensive to fix that states and local municipalities just do not have the necessary resources. It seems it’s time for the federal government to step up to the plate. The State Revolving Loan Fund (SRF) is an excellent program, but new legislation and a new funding mechanism may be the real solution.

I just don’t know how many more "canary" warnings are needed before action is taken. I can just imagine a major construction initiative that modernizes our water and sewer infrastructure while putting hundreds of thousands of men and women back into the workforce. Now that's a WIN...WIN! (See article on page 31.) n

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SEPTEMBER, 2014

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Governor Patrick Signs Economic Development Legislation

n mid-August, Governor Deval Patrick signed into law legislation, An Act to Promote Economic Growth in the Commonwealth, aimed at increasing economic development opportunities within the Commonwealth. According to the Patrick Administration, the economic development package provides new tools and training to ensure the Massachusetts workforce meets the needs of employers, bolsters the economic revitalization of the Commonwealth’s Gateway Cities with $15 million for the Gateway Cities Transformative Development Fund, and encourages the reuse of brownfields in economically distressed areas of Massachusetts with $10 million in funding. Further, the economic development package also adopts Governor Patrick’s proposal to create a pilot Global Entrepreneur in Residence Program to retain and attract entrepreneurs who are growing companies and creating jobs in the state. The program will be piloted at the University of Massachusetts Boston and the University of Massachusetts Lowell and will allow qualified, highly skilled, international students currently in Massachusetts to stay here after graduation if they are starting or growing a business and contributing to the local economy. In the area of workforce development and training, the new law includes $12 million for the middle skills job training grant fund to support advanced manufacturing, mechanical, and technical skills at vocational-technical schools and community colleges. The Workforce Competitiveness Trust Fund will also receive $1.5 million to prepare Massachusetts residents for new jobs in highdemand occupations, helping close the middle-skills gap and creating a seamless pathway to employment. Other items in the new economic development package include: • $2 million for the Innovation Institute Fund at the Massachusetts Technology Collaborative (MTC);

SEPTEMBER, 2014

• $1 million talent pipeline program that will provide matching grants aimed at increasing technology and innovation internships, and another $1 million for a start-up mentoring program to connect early-stage entrepreneurs, technology startups, and small businesses with experienced business enterprises and capital financing; • Expanding on the Commonwealth’s international tourism and marketing efforts, capitalizing on new connections overseas, helping to bring more businesses and jobs to Massachusetts; • Increasing the total financing allowed under the Infrastructure Incentive (I-Cubed) program from $325 to $600 million, and raising the number of allowed I-Cubed projects within any community from three to eight. The program provides innovative financing for public infrastructure projects expected to leverage significant economic investment; • Dedicating $3 million to the Housing Preservation and Stabilization Fund, which provides a flexible method for funding affordable housing for low-income families and individuals; • Establishing a financial services advisory council to exchange ideas and develop strategies for business and government to work together to strengthen the Commonwealth’s financial services industry; and • Creating a job creation incentive under the Economic Development Incentive Program (EDIP), allowing business to receive a tax credit up to $1,000 per job created, or up to $5,000 per job created in a Gateway City, so long as the total credit per project does not exceed $1 million. continued on page 9

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Legislative Update continued from page 7 Although signing a vast majority of the legislation, Governor Patrick did veto a number of items and offered amendments to sections governing the creation of a “live theater” tax credit. Governor Patrick also vetoed language designating entire municipalities as an “eligible location” under Chapter 40R. A blanket designation of an entire town as an “eligible location” conflicts with the goal of Chapter 40R, to encourage communities to create smart growth zoning districts near transit stations, in areas of concentrated development such as existing town centers, and in other suitable locations. In noting its absence from the final package that reached his desk, Governor Patrick re-filed legislation that limits the use of non-compete agreements and adopts the Uniform Trade Secrets Act to ensure that government acts to retain talented entrepreneurs, supports individual career growth, and encourages the development of new, innovative businesses to drive future economic growth. While the Governor strongly pushed for the Commonwealth to do away with non-compete clauses within employment contracts, the final conference committee report omitted the Senate’s more limited non-compete prohibition. Given the nature of “informal” sessions as required after July 31, it is highly unlikely the Governor’s legislation will make any progress before the legislative session ends in January 2015. continued on page 11

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Legislative Update continued from page 9

Four Ballot Questions Appearing on November’s Ballot

ith the election season heading into greater focus after Labor Day, increased media will circulate about four ballot questions potentially impacting casino gambling, mandatory sick leave, the bottle bill, and a gas tax increase. The ballot questions will appear in the following order: Question 1, the elimination of gas tax indexing; Question 2, the expansion of the bottle bill; Question 3, the repeal of casino gambling; and Question 4, mandatory earned sick time. Question 1: Brief Summary: This proposed law would eliminate the requirement that the state’s gasoline tax, which was 24 cents per gallon as of September 2013, (1) be adjusted every year by the percentage change in the Consumer Price Index over the preceding year, but (2) not be adjusted below 21.5 cents per gallon. Question 2: Brief Summary: This proposed law would expand the state’s beverage container deposit law, also known as the Bottle Bill, to require deposits on containers for all non-alcoholic non-carbonated drinks in liquid form intended for human consumption, except beverages primarily derived from dairy products, infant formula, and FDA approved medicines. The proposed law would not cover containers made of paper-based biodegradable material and aseptic multi-material packages such as juice boxes or pouches. The proposed law would require the state Secretary of Energy and Environmental Affairs (EEA) to adjust the container deposit amount every five years to reflect (to the nearest whole cent) changes in the Consumer Price Index, but the value could not be set below five cents. Question 3: Brief Summary: This proposed law would (1) prohibit the Massachusetts Gaming Commission from issuing any license for a casino or other gaming establishment with table games and slot machines, or any license for a gaming establishment with slot machines; (2) prohibit any such casino or slots gaming under any such licenses that the Commission might have issued before the proposed law took effect; and (3) prohibit wagering on the simulcasting of live greyhound races. Question 4: Brief Summary: This proposed law would entitle employees in Massachusetts to earn and use sick time according to certain conditions. Employees who

SEPTEMBER, 2014

work for employers having eleven or more employees could earn and use up to 40 hours of paid sick time per calendar year, while employees working for smaller employers could earn and use up to 40 hours of unpaid sick time per calendar year. An employee could use earned sick time if required to miss work in order (1) to care for a physical or mental illness, injury or medical condition affecting the employee or the employee’s child, spouse, parent, or parent of a spouse; (2) to attend routine medical appointments of the employee or the employee’s child, spouse, parent, or parent of a spouse; or (3) to address the effects of domestic violence on the employee or the employee’s dependent child. The general election, where these ballot questions will be decided, shall occur on Tuesday, November 4. For more information about each ballot question, please visit the Massachusetts Secretary of State’s page at: www.sec.state.ma.us/ele/ele14/ pip14idx.htm. continued on page 13

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SEPTEMBER, 2014

Legislative Update continued from page 11

Commonwealth to Hold Tax Amnesty

ccording to the Massachusetts Department of Revenue, an amnesty program in Massachusetts is set to begin on Labor Day, lasting two months and giving delinquent taxpayers and businesses the chance to avoid penalties if they fully pay outstanding tax liabilities by 5 p.m. on October 31.

Anyone subject to a tax-related criminal investigation will be ineligible as are people who signed a settlement agreement for the owed taxes or those who committed fraud in connection with the amnesty program, according to the Department of Revenue, which is implementing the program.

About 300,000 people will be receiving notices in September indicating they are eligible for the program, which proponents hope will bring in millions in state revenue without the need for raising taxes.

Lawmakers estimated the program would bring in $35 million over its two-month span. House Minority Leader Brad Jones, who proposed the budget provision, said prior amnesty programs for fiscal years 2003, 2009, and 2010, brought in a total of $167.4 million, including $102.8 million in fiscal year 2003.

With the exception of the corporate tax, which is not included, the amnesty program covers the major tax categories for individuals and businesses, including personal income, sales tax, withholding tax, and tobacco and gasoline excise taxes. Other niche taxes are also not included. Lawmakers added the tax amnesty program to the fiscal year 2015 budget, but expressed concerns that such a program should not become routine. Further, the recently passed legislation barred participants in the 2014 tax amnesty from eligibility in a future amnesty program for 10 years.

Other owed taxes included in the program are meals tax, room excise, sales tax on telecommunications, and a surcharge on sightseeing tours, among others. To learn more about this program, please visit the Massachusetts Department of Revenue’s frequently asked questions at: www.mass.gov/dor/breakingnews/amnesty-program-faqs.html continued on page 15

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Legislative Update continued from page 13

Democrats Coakley, Kerrigan, Healey, & Goldberg Will Face Republicans Baker, Polito, Sullivan, & Heffernan in General Election

assachusetts voters went to the polls on September 9 to determine their respective party candidates who will compete in the November 4 general election. As predicted, the Democratic race for Governor was close with Attorney General Martha Coakley besting Treasurer Steve Grossman and health care guru Don Berwick. On the Republican side of the ledger, former Secretary of the Executive Office of Administration and Finance, Charlie Baker, defeated Mark Fisher to win the Republican primary for Governor. The race for Governor will also include three independent candidates: Evan Falchuk, Scott Lively, and Jeffrey McCormick. In the race for Lieutenant Governor, Steve Kerrigan, former CEO of the 2012 Democratic National Convention, easily outdistanced Cambridge City Councilor Leland Cheung and non-profit entrepreneur Mike Lake. Former State Representative Karyn Polito faced no opposition in the Republican race for Lieutenant Governor. In the race for Attorney General, former Assistant

SEPTEMBER, 2014

Attorney General Maura Healey handily beat former State Senator Warren Tolman. Healey will now face John Sullivan, the Republican candidate who advanced as the only nominee from his party. In the race for Treasurer, supermarket magnet Deb Goldberg defeated State Senator Barry Finegold and State Representative Tom Conroy. Goldberg will face off with Republican nominee Michael Heffernan of Wellesley. Auditor Suzanne Bump, who faced no Democratic primary opponent, will face Republican Patricia Saint Aubin, who also had no opposition in her primary. Finally, primary day for legislative races (i.e., State Senate and State Representative) saw only one incumbent lose. State Representative Wayne Matewsky was defeated by Everett City Councilor Joseph McGonagle Jr. A variety of legislative seats will be contested in November, but the majority of elected legislative officials will face no opponent. In the next issue of Construction Outlook, a look at some of the interesting races to watch will be provided. n

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Mayor Martin J. Walsh City of Boston

Q: A:

Please give our readers some insight into your background and how you got involved in state government.

Running for office was always one of my goals. I always liked being around politics and politicians, and I thought it would be a great profession. When the opportunity presented itself, and it was the right time for me—I went for it—and I was fortunate enough to win in a seven way primary. The rest is history.

As a former State Representative, you bring a valuable perspective on how cities and towns can best work with the legislature. Please share your thoughts as to how your role as Mayor differs from your tenure as a State Representative.

Before becoming Mayor of Boston in January, I spent 16 years as a State Representative. As Mayor, I am ultimately responsible for every issue the City faces, which is very different from the role a legislator plays. However, I’ve often been able to use my legislative skills to inform my new role. For example, the work I do as Mayor requires bringing different parties to the table, giving them room to work through their differences, working with them to find consensus, and building trust.

As you are aware, access to clean drinking water and proper management of wastewater is critical. In light of the House and Senate’s passage of water infrastructure legislation this session, please discuss your thoughts relative to the importance of maintaining water and wastewater infrastructure. SEPTEMBER, 2014

Mayor Martin J. Walsh

This summer Boston’s tap water was judged to be the “Best of the Best” in a national taste test. The Boston Water and Sewer Commission does a great job meeting the city’s water and sewer infrastructure needs and making the ongoing, necessary investments to maintain and improve the infrastructure. Access to clean water and reliable waste water and drainage services are critical to ensuring the city runs smoothly and there is a good quality of life in our city. The work that the Commission does in partnership with the Massachusetts Water Resources Authority is outstanding.

The City of Boston is a dynamic city. Economic development continues to emerge throughout the City’s downtown and in its neighborhoods. Please briefly discuss your growth and/or revitalization plan for the city. continued on page 19

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“This summer Boston’s tap water was judged to be the “Best of the Best” in a national taste test. The Boston Water and Sewer Commission does a great job meeting the city’s water and sewer infrastructure needs and making the ongoing, necessary investments to maintain and improve the infrastructure. …The work that the Commission does in partnership with the Massachusetts Water Resources Authority is outstanding.”

Boston is a great place to do business. My administration is working with local small businesses to create jobs and strengthen Boston's neighborhoods. We are partnering with the business community to ensure they have what they need. We are in the midst of a development boom. Developers are breaking ground on new office, retail, and housing space across the city—much of it in creative, mixed-use combinations that maximize the unique advantages of city life from the South Boston Waterfront to Dudley Square. Our plan includes creating housing for our middle class, eliminating achievement gaps in education and bringing good jobs to every community.

Part of any successful economic development plan is the strength of the infrastructure that supports it. Can you discuss your plans for addressing the City of Boston’s infrastructure needs?

We are developing a comprehensive plan to create a vision of what Boston will look like in the future. The last time Boston had a task force looking into this was in 1965. It’s time to take a hard look at Boston’s transportation infrastructure and how people are moving around the city. Strong relationships and partnerships with the state and federal government are essential for SEPTEMBER, 2014

expanding Boston’s transportation network and improving its infrastructure. We recently launched a city-wide mobility plan that will clarify our needs and recommend ways to address those needs.

As you know, construction is one of the Commonwealth’s greatest job creators. It provides both direct and indirect jobs wherever projects are located. Do you foresee any changes within the City of Boston as to how the City views its relationship with contractors and their workforce?

It is important to work collaboratively with contractors and the building trades to provide pathways for work and career opportunities within the construction industry for Boston residents, minorities, and women. I want to ensure that all of Boston’s residents regardless of their race, gender, or what neighborhood they live in, have access to and can share in the prosperity generated by construction and development in the city. n

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MWRA Infiltration/Inflow Local Financial Assistance Program Addition of $160 Million and Guideline Revisions MWRA’s Infiltration/Inflow (I/I) Local Financial Assistance Program targets rehabilitation of community sewer systems to reduce I/I (groundwater and storm water leakage) entering local sewers and private service connections. On June 25, 2014, MWRA Board of Directors’ approved a $160 million addition to the community I/I Local Financial Assistance Program for FY15-25, increasing the overall program budget to $460.75 million. Based on recommendations from the MWRA Advisory Board, significant enhancements to the program were made, including: • Addition of Phase 9 and 10 funds at $80 million each; • Phase 9 and 10 funds distributed as 75% grant and 25% interest-free loan (previously 45% grant and 55% loan); • Loan repayment over 10 years (previously 5 years); • Communities are required to exhaust their re-

I/I Funding Results - Infiltration

maining Phase 6/7/8 funds prior to becoming eligible for distribution of Phase 9 and 10 funds; • Phase 9 funds will be distributed beginning in FY15; • Each community’s Phase 10 funds will become available to the community in the fiscal year following the distribution of half of its Phase 9 funds (known as the “trigger” for Phase 10 funds). The I/I Local Financial Assistance Program is administered by the MWRA Community Support Program. A detailed overview of the program, the Program Guidelines document, the financial assistance application, and a table of community-by-community allocations and funds utilized are available on-line at: http:/www.mwra. com/comsupport/communitysupportmain.html. The expansion of MWRA’s I/I Local Financial Assistance Program and the more favorable grant component and loan repayment terms are major positive developments for member communities. Having more funds available will enhance the communities’ ability to make needed local improvements to their sewer systems. continued on page 21

I/I Funding Results - Inflow

• 1,434 miles of sewer TV inspected • 1,100 miles of sewer smoke tested • 38,300 manholes inspected • 953 catch basins disconnected • 52 miles of sewer replaced • 39 miles new/replaced storm drains • 93 miles of cured-in-place pipe (CIPP) liners • 60,980 buildings inspected for sump pumps/ downspouts • 136 miles of sewer tested/chemically sealed • area drains redirected Wakefield 5,200 Inflowdownspouts into Manholeand in Wetland • –2,254 sewer spotRepair repairs y Sewer Repair Quincy Tidally Sewer Influenced Infiltration – Tidally Influenced Infiltration • 1,800 manhole covers replaced, focus on • 8,700 service lateral repairs manholes in wetlands/flood-prone Wakefield Inflow into Manhole in Wetland areas

Quincy Sewer Repair Tidally Influenced Infiltration

Wakefield Inflow into Manhole in Wetland 12

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SEPTEMBER, 2014

continued on page 23

$8,423,000 $2,168,500 $3,404,600 $5,135,100 $132,171,200 $8,359,000 $13,165,200 $5,102,800 $23,620,100 $3,965,900 $6,870,100 $5,740,000 $8,071,500 $12,125,000 $1,632,500 $1,639,600 $7,445,300 $12,283,900 $11,987,600 $6,076,300 $5,564,500 $5,582,600 $6,257,600 $21,197,400 $6,879,400 $19,790,000 $6,050,800 $4,629,100 $10,130,900 $15,515,800 $4,919,900 $4,722,900 $5,966,900 $3,680,000 $13,732,400 $6,285,800 $5,709,700 $2,532,300 $11,480,900 $2,462,000 $4,183,000 $3,393,400 $10,695,500

$460,750,000

Totals

Total Allocations (Phases 1 - 10)

Arlington Ashland Bedford Belmont Boston Braintree Brookline Burlington Cambridge Canton Chelsea Dedham Everett Framingham Hingham Holbrook Lexington Malden Medford Melrose Milton Natick Needham Newton Norwood Quincy Randolph Reading Revere Somerville Stoneham Stoughton Wakefield Walpole Waltham Watertown Wellesley Westwood Weymouth Wilmington Winchester Winthrop Woburn

Community

$80,000,000

$1,405,000 $420,000 $561,000 $848,000 $23,293,000 $1,520,000 $2,280,000 $899,000 $4,027,000 $645,000 $1,319,000 $913,000 $1,421,000 $2,050,000 $300,000 $290,000 $1,305,000 $2,229,000 $2,013,000 $1,081,000 $914,000 $969,000 $994,000 $3,668,000 $1,180,000 $3,454,000 $1,078,000 $844,000 $1,853,000 $2,699,000 $814,000 $798,000 $1,017,000 $638,000 $2,355,000 $1,050,000 $970,000 $441,000 $1,995,000 $428,000 $703,000 $586,000 $1,733,000

Phase 9 Funds (Beginning FY15)

$80,000,000

Phase 10 Funds (Future)

$380,750,000

$7,018,000 $1,748,500 $2,843,600 $4,287,100 $108,878,200 $6,839,000 $10,885,200 $4,203,800 $19,593,100 $3,320,900 $5,551,100 $4,827,000 $6,650,500 $10,075,000 $1,332,500 $1,349,600 $6,140,300 $10,054,900 $9,974,600 $4,995,300 $4,650,500 $4,613,600 $5,263,600 $17,529,400 $5,699,400 $16,336,000 $4,972,800 $3,785,100 $8,277,900 $12,816,800 $4,105,900 $3,924,900 $4,949,900 $3,042,000 $11,377,400 $5,235,800 $4,739,700 $2,091,300 $9,485,900 $2,034,000 $3,480,000 $2,807,400 $8,962,500

Total Allocations (Phases 1 - 9)

$265,353,902

$5,613,000 $1,328,500 $1,691,600 $2,992,100 $83,711,976 $3,425,800 $5,526,400 $3,285,800 $11,077,055 $2,675,900 $4,232,100 $3,914,000 $3,141,500 $5,003,000 $952,852 $896,562 $4,835,300 $4,593,900 $4,794,600 $3,914,300 $3,251,500 $3,644,600 $2,892,150 $13,861,400 $3,955,399 $12,882,000 $3,894,800 $2,870,100 $5,502,900 $10,117,800 $3,291,900 $2,696,900 $3,527,400 $1,928,300 $7,808,400 $2,581,800 $2,748,808 $1,425,300 $5,545,300 $1,388,000 $2,777,000 $1,926,400 $7,229,500

Total Distributions (Phases 1 - 9)

MWRA I/I LOCAL FINANCIAL ASSISTANCE PROGRAM FUNDING SUMMARY AS OF SEPTEMBER 2014

$35,396,098

$0 $0 $591,000 $447,000 $1,873,224 $1,893,200 $3,078,800 $19,000 $4,489,045 $0 $0 $0 $2,088,000 $3,022,000 $79,648 $163,038 $0 $3,232,000 $3,167,000 $0 $485,000 $0 $1,377,450 $0 $564,001 $0 $0 $71,000 $922,000 $0 $0 $430,000 $405,500 $475,700 $1,214,000 $1,604,000 $1,020,892 $225,000 $1,945,600 $218,000 $0 $295,000 $0

Funds Remaining (Phases 6 - 8)

$115,396,098

$1,405,000 $420,000 $1,152,000 $1,295,000 $25,166,224 $3,413,200 $5,358,800 $918,000 $8,516,045 $645,000 $1,319,000 $913,000 $3,509,000 $5,072,000 $379,648 $453,038 $1,305,000 $5,461,000 $5,180,000 $1,081,000 $1,399,000 $969,000 $2,371,450 $3,668,000 $1,744,001 $3,454,000 $1,078,000 $915,000 $2,775,000 $2,699,000 $814,000 $1,228,000 $1,422,500 $1,113,700 $3,569,000 $2,654,000 $1,990,892 $666,000 $3,940,600 $646,000 $703,000 $881,000 $1,733,000

Current Funds Available

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Massachusetts Water Resources Authority Upcoming Construction Awards

MWRA continued from page 21

Estimated Contract Notice to Est. Contract Notice to Amount Proceed ($000s) ProceedAmount ($000s)

MWRA Upcoming Construction Awards Project Project

Phase Phase

Anticipated Awards DI Treatment Plant Asset Protection

Thermal Power Plant Boiler Control Replacement

Nov-14

$1.6

Weston Aqueduct Supply Mains

Sect 36 Arlington Water Main

Oct-14

$10.5

DI Treatment Plant Asset Protection

Barge Berth and Facility Replacement

Dec-14

$2.3

DI Treatment Plant Asset Protection

Variable Frequency Drive Secondary Oxygen

Dec-14

$2.2

DI Treatment Plant Asset Protection

Fuel System Modifications

Sep-14

$3.0

Facility Asset Protection

Alewife Brook Pump Stn Rehab - Const.

Jan-15

$10.4

Long Term Redundancy

Wachusett Aqueduct Pump Station Construction

Mar-15

$50.6

DI Treatment Plant Asset Protection

Gravity Thicknener Rehabilitation

Jan-15

$5.8

Facility Asset Protection

Caruso PS Impovements - Const

Jan-15

$2.4

Facility Asset Protection

Chelsea Screenhouse Upgrades

Jan-15

$3.5

DI Treatment Plant Asset Protection

Digester SludgePump Replacement Ph 2

Feb-15

$4.7

Clinton Wastewater Treatment Plant

Clinton Roofing Rehab

Apr-15

$0.5

DI Treatment Plant Asset Protection

Winthrop Terminal Facility VFD Replacement - Construction

Jun-15

$4.1

Facility Asset Protection

Prison Point Piping Rehab

Jul-15

$0.3

Spot Pond Supply Mains Rehabilitation

Sec 4 Webster Ave Bridge Pipe Rehab Construction

Jul-15

$1.5

Central Monitoring System

Quabbin Power Communication & Security

Jul-15

$2.8

Winsor Station Pipeline

Hatchery Pipeline - Construction

Jul-15

$2.8

Sudbury/Weston Aqued. Repair

Rosemary Brook Building Repair

Jul-15

$1.5

NIH Redundancy & Storage

Sec 89/29 Redundundancy Construction Ph 1B

Aug-15

$19.8

Facility Asset Protection

Chelsea Creek Upgrade Construction

Sep-15

$53.7

Facility Asset Protection

Cottage Farm Construction 1 (PCB)

Sep-15

$2.1

Total TOTAL

$186.1

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Jonathan T. Elder Hinckley Allen, LLP

Governor Patrick Signs Bill Capping Retainage on Private Projects at 5 Percent On August 8, 2014, Governor Patrick signed into law “An Act Relative to Fair Retainage Payments in Private Construction” (the “Act”). The Act’s primary feature is the establishment of a 5 percent limit on retainage on private construction projects for which the general contract amount is $3 million or more. The Act, which becomes effective on November 6, 2014, is the culmination of over three years of negotiation and development by industry trade groups who successfully persuaded the Legislature that reducing owner withholdings will reduce overall costs of construction and promote a timelier project closeout process.

Overview of Requirements

here is much more to the Act than the 5 percent cap on retainage. The Act also establishes new, strict procedures and timetables for invoicing and release of retainage, all of which are keyed to a newly-redefined concept of “Substantial Completion.” The Act’s essential components and timetables are: • 5 percent cap on qualifying projects: Retainage is limited to 5 percent of each progress payment on private projects of $3 million or more (based on prime contract value). • Initial notice of substantial completion: The general contractor must send the owner notice of substantial completion, in the form required by the Act, within 14 days of achiev-

SEPTEMBER, 2014

ing that milestone. The owner then has 14 days to respond to the notice; if the owner fails to respond in that time, the project will be deemed substantially complete. • “Substantial Completion” redefined: The Act defines “substantial completion” to mean the project is “sufficiently complete in accordance with the contract for construction so that the project owner may occupy or utilize the work for its intended use.” • Submission of punch list: Once the owner accepts substantial completion – expressly or by default for failure to respond – it has 14 days to submit a punch list to the general continued on page 27

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Legal Corner continued from page 25 contractor. The GC has 21 days from acceptance of Substantial Completion – 14 days plus an additional 7 days by virtue of being one tier below the owner – to submit that punch list, which must include any additional items identified by the GC, to all applicable subcontractors. • Limit on punch list amount: The punch list amount cannot exceed 150 percent of the value of the incomplete or defective work. For project deliverables – e.g., contractually required closeout documents including as-built drawings, lien waivers, etc. – the punch list cannot exceed 2.5 percent of the total contract value, unless a different value is agreed on by the parties. An owner cannot withhold subcontractor retainage based on claims against the GC involving unrelated work, unless the GC has defaulted. • Invoicing: GCs and subcontractors can invoice for their retainage within 60 days of Substantial Completion. The owner must pay the invoiced amount within 30 days of being invoiced, after which GCs have 7 additional days to pay their subcontractors.

Other Issues and Requirements to Consider The Act also institutes several formalistic requirements that are intended to complement similar requirements of the Massachusetts Prompt Payment Law. All written submissions related to the release of retainage, including the certification of Substantial Completion and submission of punch lists, must be certified in good faith. Similarly, an owner’s rejection of Substantial Completion or rejection of payment must, besides being certified in good faith, be supported by written statements describing the “factual and contractual” basis of rejection. If the contractor disputes the owner’s rejection, the contractor must initiate the dispute resolution process required by the contract within 7 days. Also, both the owner and the GC retain the right to withhold amounts from retainage for, in addition to punch list items, outstanding deliverables and “claims,” which the Act appears to define as claims for breach of contract. The Act caps the withholding amount for deliverables at 2.5 percent of the adjusted contract price, and limits the withholding amount for claims to the “reasonable value” of the claims, plus any costs permitted by contract and/or statute. continued on page 29

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Legal Corner continued from page 27

As with the Prompt Payment Law, the requirements of the Act cannot be modified by contract; any contract provision that would attempt to waive, limit, redefine, or alter the terms of the Act, including by changing or relaxing the conditions for establishing Substantial Completion, will be “void and unenforceable.”

Implications for Contractors Although the Act provides potential benefits to contractors and owners alike in the form of increased cash flow, reduced risk for contractors, more timely completion of closeout, and perhaps reduced construction costs, contractors should be mindful of the pitfalls posed by the Act. Among them is the seemingly less concrete definition of “Substantial Completion,” which makes no reference, for example, to the issuance of a certificate of occupancy or actual beneficial use by the owner, potentially opening the door to disputes over whether certain types of projects are “sufficient complete” for its “intended use.” Another potential risk lies in the right to offset retainage for “claims,” which, by being limited to claims for breach of contract, appears to exclude withholding money for potential claims by third parties that may arise from personal injury or other claims. The Act’s 7-day dispute resolution requirement may also have implications for how claims are resolved. Although that provision explicitly speaks only to an owner’s rejection of Substantial Completion, it logically should include any other claims between the contractor and owner (since the rejection likely will be caused by such pending claims, and both parties would want to include all claims and avoid multiple arbitrations on the same project). Assuming that is the case, the Act could significantly accelerate the dispute resolution process. As with all new legislation, the risks posed by the Act can be mitigated and resolved through proper contract negotiation and drafting. Contractors with concerns about the Act’s new requirements should consult with counsel to ensure firm-wide compliance once the Act takes effect on November 6. n SEPTEMBER, 2014

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Water and Sewer Volcano Ready to Blow

Make no mistake, something is "brewing" below ground in the United States of America and it's not just the super cauldron below Yellowstone National Park. Similar to the plumes of super heated steam spewing from multiple fissures in the earth, the hundreds of stories relating problems with our nation's underground water and sewer pipelines are infrastructure-warning signs which indicate that our systems are being stressed beyond their design limits. Warning signs that if ignored, will result in changes to Americans' way of life that will alter the social fabric of our country in ways we can only imagine. One can certainly imagine someday a map of the USA where states are no longer referred to in a political way (red for Republican or blue for Democrat), but as states that are either "water sufficient or water deficient".

e can only guess the states where people will migrate to and those where people will migrate from. Once the public hears and reacts to our country’s clean drinking water problems, states that have invested in collecting, protecting, and supplying clean drinking water should expect an influx of new residents. Right now, the public is basically being kept in the dark about clean water issues. Every story is treated by the news media as a local story. But taken together across the fifty states, each of these stories now becomes a far-reaching narrative of the condition of our nation’s underground water and sewer infrastructure. Eventually, as water problems become more frequent and more intrusive, the public will demand a response. Those responsible for managing our natural resources and providing clean water to the public, specifically the EPA, know the problems. Business leaders know the problems. Environmental organizations know the problems. Our elected officials also know about the problems. The major question that has not been answered is why those in the know have been unable to address the problems. One answer may be that the problems are so pervasive and growing so large that the source of billions of dollars needed has not been identified and the funds that are available are being allocated to other national programs. To show the broad spectrum of problems, the following stories were compiled over the last few months from various news sources across our nation:

NEW JERSEY: A draft study, entitled “Facing Our Future” identified the state’s water needs at approximately $8 billion over the next five years. When wastewater treatment needs were added in, the total rose to $37 billion. An

SEPTEMBER, 2014

earlier study identified the 10-year cost for transportation, wastewater treatment plants, and drinking water facilities at $113 billion. On the local level, a Rutgers University report entitled, “New Jersey Future Report on Water Infrastructure” highlighted the State’s failure to invest in modern drinking water supply and wastewater control systems for many of its largest cities. The Report specifically called out combined sewer overflows (CSOs) as an area that the State is lagging behind, with over 200 outfalls discharging into the local harbors and rivers. It was noted that the NJ DEP expects to issue final permits in early 2015. Cities would then have 2-3 years to start their compliance. Of the 20 or so large cities, Camden and Newark can expect to spend approximately $500 million each on their water and sewer systems over the next 10 years. The State will spend $1.28 billion on water and sewer improvements, including spending over $350 million to add backup power to its treatment plants to protect against outages from natural disasters, such as was experienced during Hurricane Sandy in 2012.

MICHIGAN: After an exhausting 3-day hunt, teams of Bay City investigators were able to locate a broken pipe that was the source of a massive 20 million gallon water main break, and start the repair process. The culprit was a 24-inch water main near the city’s wastewater treatment plant. Water pouring out of this pipe then drained into a 36-inch storm pipe that emptied into the Saginaw River. During this period, city residents were under an emergency water use declaration. Detroit has no answer for what officials called a 100-year event, when 4-6 inches of rain fell in a four hour period, popping covers off manholes and continued on page 33

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Water & Sewer continued from page 31 overloading their 108-inch sewer lines and their storm water retention systems. With a recent study showing the city and surrounding areas needing $30 billion in sewer upgrades and the city having severe economic problems, the official response explained there would be no immediate improvements to the system since they are not expecting another 100-year storm very soon.

WISCONSIN: Milwaukee is exploring an interesting and unique solution to prevent flooding during heavy downpours when their CSO system can be overwhelmed. The city released a study, whereby basements of abandoned homes would be used to store storm water, thereby hoping to alleviate both streets flooding and flooding of basements in livable homes.

CALIFORNIA: The EPA, taking action under the Clean Water Act provisions, reached an agreement with the East Bay Municipal Utility District which serves six cities, and a second sanitary district serving an additional three cities, to eliminate millions of gallons of sewage from being discharged into the 1,600 square mile San Francisco Bay, which is the commercial and recreational center to seven million locals. The District agreed to pay a hefty fine for past discharges and perform $1.5 billion in upgrades to its 1,500-mile sewer system over the next 21 years. While these upgrades will eliminate a major source of pollution, the Bay still has numerous other pollution sources to contend with. A major source is old and crumbling CSO systems that can be overwhelmed during rainstorms and allow raw sewage to be dumped into the Bay. The Mayor of Los Angeles placed the blame for the recent water main break on an aging underground 30-inch water pipe, dating back to the 1950s. A USA TODAY writer stated the age of that pipe is 93-years-old. The pipe break shot water 30 feet into

the air and spewed over 20 million gallons of water over a 50 hour time period before crews could identify the location of the break at the junction of two main water trunk lines, slowly shut a total of nine different water valves, and started the excavation process. Even with a 90 percent flow shutoff, the pipe break leaked 1,000 gallons of water per minute. Life along Sunset Boulevard, a key city artery, came to a standstill as a huge 25-by-30-inch sinkhole had formed stopping all traffic and causing businesses to close. UCLA, where the damage was extensive, saw nearly 1,000 cars stranded in flooded garages. The lower level garage had water almost to ceiling height and hundreds of cars were considered a total loss. Water flowed into the Pauley Pavilion, home to the school’s famed basketball teams, with other damage seen at the Wooden Center and the J.D. Morgan Center.

OHIO: The Governor called for a state-of-emergency banning the drinking or use of municipal water for 500,000 people in Toledo and surrounding areas, as high levels of the toxin microsystin was discovered in water samples taken from the city’s treatment plant. The ban also warned the public that boiling the water did not kill or lessen the affects of the toxin. For continued on page 35

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Water & Sewer continued from page 33

the first associated with the Lake’s algae. According to scientists, the problem may be due to one of the most common and most toxic strains of algae, Microscystin-LR, which is also the most common strain found in the Great Lakes. Blooms of this toxin can cause abdominal pain, vomiting, and kidney damage, were predicted earlier by NOAA, but the severity of the bloom near the western shores of Lake Erie near the Toledo water treatment plant intake was not predicted. The total cost to the City and its residents was not available.

WEST VIRGINIA:

two days, residents scrambled to buy every available bottled water and ice pack from local stores. The National Guard was called in to transport and distribute thousands of gallons of water while distribution centers were established throughout the city and at selected fire stations. After two days, water samples showed acceptable levels of the toxin and the ban was lifted. Toledo’s water treatment facility uses Lake Erie as the source of its drinking water, as do another 10.5 million users. The Toledo water ban was not

The governor of this major coal producing state called for a ban on using tap water after a chemical, MHM, used in processing coal, leaked from storage tanks into the Elk River, which was the source for municipal water supply for the City of Charleston, WV. FEMA passed out 2 million liters of water during the ban, which lasted a total of 10 days and affected the lives of nearly 300,000 residents, many of whom complained of skin irritations, rashes, vomiting, and diarrhea. Residents and businesses were warned to thoroughly flush their water pipes before using the water for bathing, cooking, or washing clothes. continued on page 36

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Water & Sewer continued from page 35

NEW YORK: While considered by many to be one of best at investing in protecting its drinking water supply and having some of the best tasting drinking water in the country, New York is facing a potentially huge problem with the Delaware Aqueduct. Completed in 1945, the Aqueduct brings pristine unfiltered water from nineteen upper state reservoirs to the City of New York and its nine million residents. As early as 1995, major leaks have been detected in the Aqueduct with estimates of water loss exceeding 35 million gallons per day, enough to supply the needs of 500,000 residents. Construction of a $1 billion by-pass tunnel around the most significant leaks was begun in late 2013 and will be completed in 2021. While the construction itself is challenging, the water authority in charge will need to shut down the Aqueduct for a significant amount of time to allow the by-pass tunnel to be tied into the existing aqueduct. The social, economic, and financial impact to New York City residents, businesses, and commerce has not been quantified. The scope and varied types of water problems in these stories are unbelievable. No two are alike, but each caused tremendous havoc to those affected. In today's economic environment it has become more and more apparent that individual states, and to a greater degree cities and towns, do not have the funding resources necessary to effectively begin to resolve their own internal water problems. As time goes on it becomes more and more obvious that the federal government and Congress must take the lead. The Clean Water Act, enacted in 1972 was their first attempt to nationalize our nation's water problems. Environmentalists were the first to sound the alarm, and it was also the first time that the public really became aware of the magnitude of the problem. Congress reacted by passing a very successful water program and gave EPA the responsibility to manage it. Initially funded at $4 billion per year, the EPA established a 75 percent construction grants provision to the states for mainly wastewater pollution control projects thereby averting, what many believed, was a looming national tragedy. The successful EPA grants program was later followed by the Drinking Water State Revolving Loan Fund (SRF), which provided federal funds to states on a sharing basis. States added their funds to the federal funds and created a program that provided low interest rates to municipalities and state agencies to perform

36 “BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK” 56 “BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

continued on page 37

SEPTEMBER, 2014 NOVEMBER, 2009

Water & Sewer continued from page 36 wastewater pollution control projects. The Clean Water State Revolving Fund was then established in 1997 under the Safe Drinking Water Act and was the last real action taken by the federal government and Congress to address our nation’s underground water and sewer infrastructure. Unlike road and bridge infrastructure that has a State and Federal dedicated funding source (gas tax revenue), the underground water and sewer infrastructure has no such “luxury”. Every few years a new debate in Congress ensues as to how much to allocate to water and sewer programs. As aging pipelines and plants begin to crumble, and as the gap between need and actual funding grows, the Federal participation since the 70s has been declining steadily to where it now represents less than 1 percent of our Federal Tax Burden. At the current rate of Federal investment, the 20year nationwide gap is estimated to be more than $500 billion. Though the gap projection is enormous, it can and must be addressed now by either a dedicated funding mechanism or an increase in Federal funding. Just because many of the water and sewer problems are buried underground, it makes no sense to pretend that nothing is wrong. How important is water

in our lives? Just try living for even a single day without clean water.

The President and Congress can no longer close their eyes to this problem. We just hope that they begin to listen to people who know and understand the problems, and start to address the funding issues before a national tragedy forces them to face the problem under duress. Figuratively speaking, there is a water and sewer volcano under foot and its ready to blow. n

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Environmental Viewpoint Robin L. Main, Esq.

Rhiannon Campbell, Esq.

Hinckley Allen, LLP

The Expanded Definition of “Waters of the United States” EPA and Corps Rule Proposal Robin L. Main is a Partner in Hinckley Allen LLP’s litigation group and co-chair of the firm’s environmental practice group. Rhiannon A. Campbell is an Associate in Hinckley Allen LLP’s litigation and environmental practice groups. Portia Smith is a summer Associate.

n April 21, 2014, the Environmental Protection Agency (“EPA”) and the US Army Corps of Engineers (“Corps”) formally proposed a new rule to redefine the scope of the term “waters of the United States” under the Clean Water Act (“CWA”). The rule proposal is in direct response to a series of U.S. Supreme court cases that grappled with the definition of “waters of the United States.” The EPA and Corp’s stated goal of the rule is to “increase CWA program predictability and consistency by increasing clarity as to the scope of the waters of the United States protected under the CWA.”

Current regulations define the term to include traditional navigable waters, interstate waters, and “other waters” that could affect interstate or foreign commerce. The proposed rule retains defined jurisdictional categories of waters including traditional navigable waters, interstate waters, the territorial seas, and impoundments of “waters of the United States.” However, the proposed rule alters current regulations by removing automatic jurisdiction for the extensive list of “other waters” and instead provides for jurisdiction if there is a showing that these “other waters,” have a “significant nexus” to traditional navigable water, interstate water, or the territorial seas.

SEPTEMBER, 2014

Also included in the proposed new definition of “waters of the United States” are tributaries and adjacent waters. As a result, these bodies are within the jurisdiction of the CWA without requiring the case specific analysis required for “other waters.” The proposed rule does not affect existing exemptions in the CWA for farming, ranching, and other activities. It also does not change regulatory exclusion for waste treatment systems.

The public comment period for the proposed rule ends on October 20, 2014. For more information on the proposed rule or to participate in the public comment process, visit https://www.federalregister.gov/articles/2014/04/21/2014-07142/ definition-of-waters-of-the-united-statesunder-the-clean-water-act. n

“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

Making the Case for

Infrastructure Investments

n 2007, Framingham found itself in the â&#x20AC;&#x153;perfect stormâ&#x20AC;? of failing water and sewer infrastructure. Its Ă&#x20AC;UVW JHQHUDWLRQ RI SLSHV LQVWDOOHG between 1890 and 1920, was at the end of its useful life, and the second generationâ&#x20AC;&#x201D;built mostly by private developers ZLWK OLWWOH RIĂ&#x20AC;FLDO RYHUVLJKW EHWZHHQ and the early 1970sâ&#x20AC;&#x201D;was starting to fail. Repairs were needed to the townâ&#x20AC;&#x2122;s infrastructure, which includes approximately PLOHV RI ZDWHU VHZHU DQG GUDLQDJH pipes, not to mention roads, bridges and SXPS VWDWLRQV $ VLJQLĂ&#x20AC;FDQW SRUWLRQ RI these networks had been neglected since installationâ&#x20AC;&#x201D;in some cases up to 120 years agoâ&#x20AC;&#x201D;until they broke.

Jennifer A. Pederson is Executive Director of the Massachusetts Water Works Association (masswaterworks.org) and Co-Chair of the Water Infrastructure Alliance. 16

The crisis, according to master plans developed in 2006, would cost the town more than $200 million for repairs and replacementâ&#x20AC;&#x201D;much more than any capital appropriation the town of 68,000 residents had ever approved. Fortunately, Framinghamâ&#x20AC;&#x2122;s Department of Public Works had LGHQWLĂ&#x20AC;HG WKH LVVXH LQ VWXGLHG WKH situation, and charted a course of action. Equipped with master plans for water and VHZHU UHSDLUV WKH '3: DQG WRZQ RIĂ&#x20AC;FLDOV started an aggressive outreach program involving various organizations, key civic leaders and Town Meeting subcommittees. When the Department of Environmental Protection issued an administrative consent order mandating sewer improvements in 2006, the community understood the seriousness of the problem. Local industry also helped, committing to expansion if the town could increase its water and sewer capacity.

Framingham has now completed most of the work mandated by the consent order. [See www.buildingframingham.com.] While the extensive repairs meant an increase in water and sewer rates, the impact has been tempered by capitalizing on various grants and low- or no-interest loans. The townâ&#x20AC;&#x2122;s capital program is now shifting from water and sewer issues to roadway and transportation needs, and the communityâ&#x20AC;&#x2122;s residents and businesses continue to be engaged and supportive. Most Massachusetts municipalities face similar issues with their underground infrastructure. In its 2012 report, the Water Infrastructure Finance Commission documented a $40 billion gap between available funding and the need for water, sewer and stormwater system infrastructure repairs. Once-abundant federal funds have shrunk sigQLĂ&#x20AC;FDQWO\ ZKLOH PDQGDWHV KDYH LQFUHDVHG DQG pipes and pumps have been mostly untouched.

MUNICIPAL ADVOCATE Vol. 28, No. 1

â&#x20AC;&#x153;BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOKâ&#x20AC;?

SEPTEMBER, 2014

BY JENNIFER A. PEDERSON

Reliable and resilient water, wastewater and stormwater systems are essential to health, economic vitality and environmental protection. It took generations to create our critical water and sewer assets. To protect this massive investment, municipalities must think about how to engage the rate-paying public for support. Itâ&#x20AC;&#x2122;s tempting to defer maintenance during GLIĂ&#x20AC;FXOW HFRQRPLF WLPHV EXW YRWHUV DQG ratepayers need to know that procrastination will almost always cost more in the long run. â&#x20AC;&#x153;Planned infrastructure replacement is critical to maintaining properly functioning water, wastewater and stormwater systems,â&#x20AC;? says Eric Johnson, director of project management for the Framingham DPWâ&#x20AC;&#x2122;s Capital Improvement Division. â&#x20AC;&#x153;As stewards of these assets, municipalities must recognize that they need to continually reinvest in the public infrastructure to avoid a future surge of necessary capital improvements as well as unnecessary operational costs and emergency repairs.â&#x20AC;? The challenge for municipal managers and policy makers is to make an effective case to voters and ratepayers. Many residents donâ&#x20AC;&#x2122;t realize that these essential services are often only partly funded

Appropriation (millions)

Town of Framingham Infrastructure Capital Appropriations 1963â&#x20AC;&#x201C;2012

Year

through current rates. And few have thought about how well they are served by the water and sewer utilitiesâ&#x20AC;&#x201D;and for much less than they pay monthly for cable, the Internet or their cell phones.

Do It With Data

Before mounting public outreach efforts, utilities need a clear inventory of their water and sewer assets and the long-range costs for their repair and replacement. Typical capital improvement plans for water and sewer systems estimate needs for the next twenty years and include an inventory of assets and when they will need to be replaced. Getting a handle on this data, and setting priorities based on asset age and condition, will give managers a roadmap to guide future rate increases. Communities can use an enterprise fund to ensure that ratepayer fees will go directly to the utilities, which is key to EXLOGLQJ YRWHU FRQĂ&#x20AC;GHQFH WKDW IXQGV DUH well-managed. Utilities can then make a clearer case for infrastructure investment, since these projects wouldnâ&#x20AC;&#x2122;t be competing with other community priorities for funding. Enterprise funds also encourage full-cost pricing, as a utility has to be able to fully support all of its expenses through rates. To avoid rate shock, prudent managers use small, regular rate increases. The Water Infrastructure Finance Commission report estimates that the funding gap FRXOG EH UHGXFHG VLJQLĂ&#x20AC;FDQWO\ VWDWHZLGH LI UDWHV DUH UDLVHG RYHU WLPH WR percent of each communityâ&#x20AC;&#x2122;s median household income for each utility. The statewide average for rates at the time RI WKH UHSRUW ZDV SHUFHQW RI PHGLDQ KRXVHKROG LQFRPH IRU ZDWHU DQG percent for sewer, which suggests that there is room for growth. Itâ&#x20AC;&#x2122;s important not to forget stormwater systems in planning for water and sewer repairs. Before long, the U.S. Environmental Protection Agency will be reissuing permits for discharges from municipal separate storm sewer systems (MS4). New regulatory mandates are likely to be expensive, and communities may need new funding mechanisms to comply. The commissionâ&#x20AC;&#x2122;s report conservatively estimated the stormwater repair and improvement gap at $18 billion continued on page 45

MUNICIPAL ADVOCATE Vol. 28, No. 1

SEPTEMBER, 2014

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Making the Case for Infrastructure Investments Infrastructure Investments continued from page 43 in the next twenty years. One option for Massachusetts municipalities is to create a stormwater utility and enterprise fund, and assess fees on businesses and residents. Help for setting one up will soon be available from the Metropolitan Area Planning Council in the form of a Stormwater Utility Toolkit.

Water Wednesdays and Other Ideas

Once the planning and other fundamentals are in place, itâ&#x20AC;&#x2122;s time to start educating the public about system needs and the value they deliver. Worcesterâ&#x20AC;&#x2122;s Department of Public Works and Parks has increasingly been using social media for outreach. The department uses Twitter QHDUO\ IROORZHUV DQG )DFHERRN Â´OLNHVÂľ WR LQIRUP UHVLGHQWV DERXW everything from water main breaks to Christmas tree collectionsâ&#x20AC;&#x201D;with positive feedback from residents.

Last fall, Worcester expanded its LVRODWHG LQFLGHQW QRWLĂ&#x20AC;FDWLRQV DERXW ZDWHU with a twelve-week â&#x20AC;&#x153;Water Wednesdaysâ&#x20AC;? campaign on Facebook. Lisa Denoncourt, a senior customer service representative, along with Water Supply Supervisor Bruce Blanchard and Kimberly Abraham, the senior sanitary inspector and water and sewer division educator, created a series of colorful stand-alone informational graphics that explain various aspects of Worcesterâ&#x20AC;&#x2122;s water story. â&#x20AC;&#x153;We have an hour-long PowerPoint presentation that we present to college classes and other audiences that explains from beginning to end how we supply water, but it has a lot of technical information in it,â&#x20AC;? Abraham said. â&#x20AC;&#x153;This presentation was retained as a framework, but updated using language that would be understandable to the average person, who may take water services for granted. We added a lot of images to present the information in a creative and compelling way.â&#x20AC;? Phil Guerin, Worcesterâ&#x20AC;&#x2122;s environmental systems director, saw the value of 18

social media after a large water main break in 2012. â&#x20AC;&#x153;We were sending out updates every hour [on the day of the break],â&#x20AC;? he said. â&#x20AC;&#x153;A growing portion of our society doesnâ&#x20AC;&#x2122;t read the newspaper or watch TV newsâ&#x20AC;&#x201D;they get news through social media. So itâ&#x20AC;&#x2122;s important to use todayâ&#x20AC;&#x2122;s tools to get messages out to our community.â&#x20AC;? Not only do such campaigns bridge the divide between municipal â&#x20AC;&#x153;insidersâ&#x20AC;? and the rate-paying public, they highlight and explain the utilityâ&#x20AC;&#x2122;s work, giving residents a better understanding of why rate increases are needed as part of a communityâ&#x20AC;&#x2122;s funding strategy. Other critical communication tools include an up-to-date website and regular newsletters, open houses and presenta-

Stretching Local Dollars

State and federal fundsâ&#x20AC;&#x201D;grants as well as loansâ&#x20AC;&#x201D;are available for municipal utility capital projects, particularly if multiple projects can be completed together. One way to prevent digging up a road twice is to include needed water, storm drain and sewer repairs to already-scheduled road improvements, or take advantage of private development to incorporate a needed pipe repair or extension. The following are two recent examples of creative approaches to promoting water infrastructure improvements in Massachusetts communities.

Because infrastructure funding is a national problem, several organizations have developed tools to help municipalities communicate with their customers. tions to schoolchildren or community groupsâ&#x20AC;&#x201D;all opportunities to highlight a capital improvement plan and recent work completed as part of it. Because infrastructure funding is a national problem, several organizations have developed tools to help municipalities communicate with their customers. Campaigns such as WATERâ&#x20AC;&#x2122;S WORTH

MUNICIPAL ADVOCATE Vol. 28, No. 1

SEPTEMBER, 2014

IT (www.waters-worth-it.org), Liquid Assets (www.liquidassets.psu.edu) and Only Tap Water Delivers (www.awwa.org) have created a wealth of ready-made talking points, fact sheets, PowerPoint presentations, newspaper columns, public service announcements, brochures, print ads and bill stuffers. They can be easily adapted for use by any municipality, saving time and effort. WATERâ&#x20AC;&#x2122;S WORTH IT, developed by the Water Environment Federation, has simple messages that resonate with a wide range of audiences on the importance of water: how clean water is essential to quality of life, economic vitality and environmental protection.

North Easton Village The historic Ames Shovel Works complex, which once produced shovels and tools used worldwide, remained a symbol of North Eastonâ&#x20AC;&#x2122;s heritage even after the complex closed in the V ,Q WKH ODWH V D SODQ IRU WKH

continued on pagecontinued 20 on page 47

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SEPTEMBER, 2014

Making the Case for Infrastructure Investments Infrastructure Investments continued from page 18

continued from page 45 redevelopment of the Shovel Works kickstarted a multi-phased effort to rejuvenate the entire village. The redevelopment incorporated elements of housing, economic development, transportation, infrastructure improvement, and historic SUHVHUYDWLRQ WKDW EHFDPH WKH Ă&#x20AC;YH SLOODUV of a public-private partnership. The proposed redevelopment included affordable housing units, allowing the developer to secure federal Housing and Urban Development grants. Because affordable housing and historic preservation were involved, the town voted to use Community Preservation $FW IXQGV DQG PLOOLRQ ZDV JUDQWHG from the CPA fund to the developer and PLOOLRQ ZDV ORDQHG 7R KHOS SD\ for a new wastewater treatment plant and collection system, the town secured low-interest loans from the Clean Water State Revolving Fund. In addition, the town won two MassWorks grants totalLQJ PLOOLRQ WR SD\ IRU LPSURYHPHQWV to streets and other infrastructure associated with the project. Finally, the town combined the sewer collection

Resources â&#x20AC;˘ Capital Improvement Plan for Public Water Systems: www.mass.gov/eea/docs/dep/water/laws/a-thru-h/cipform.pdf â&#x20AC;˘ Guidelines on Establishment of Enterprise Funds (under M.G.L. Ch. 44, Sec. 53FÂ˝): www.mass.gov/dor/docs/dls/publ/misc/enterprisefundmanual.pdf â&#x20AC;˘ Stormwater Utility Funding Starter Kit: www.mapc.org/Stormwater_Utility_Funding_Starter_Kit

Not only has Easton saved the Ames Shovel Works complex and created a blueprint for a public-private partnership, EXW WKH WRZQ KDV RSHQHG LWV Ă&#x20AC;UVW SXEOLF sewer system, addressed housing and infrastructure needs, and inspired redevelopment of the North Easton Village.

Town of Ayer

Ayer Public Works Superintendent Mark Wetzel is using Facebook, Twitter, email, face-to-face chats, and lots of data to make the case for accelerated

â&#x20AC;&#x153;We spend $300,000 on paving roads each year. We donâ&#x20AC;&#x2122;t want to dig them up again to ďŹ x water or sewer pipes.â&#x20AC;? â&#x20AC;&#x201C; Ayer Public Works Superintendent Mark Wetzel

system construction with water main XSJUDGHV DQG VWUHHWVFDSH EHDXWLĂ&#x20AC;FDWLRQ LQ WKH YLOODJH IRU DGGLWLRQDO HIĂ&#x20AC;FLHQFLHV DQG EHQHĂ&#x20AC;WV As part of the funding, the town FUHDWHG D WD[ LQFUHPHQW Ă&#x20AC;QDQFLQJ district for the commercial area of the village, allowing potential developers to defer costs. Today, sewer betterments are $20,900 per single-family parcel. The town passed a home rule petition for a thirty-year payback period at 2.4 percent interest.

repairs to the townâ&#x20AC;&#x2122;s forty-seven miles of water pipes, especially the unlined cast iron ones dating back to 1898. â&#x20AC;&#x153;I think enough residents understand this needs to be done,â&#x20AC;? he says. So do big industrial water users, including Pepsi, Vitasoy and Cains Foods. When Wetzel started his job in Ayer two years ago, he quickly realized the town didnâ&#x20AC;&#x2122;t have updated maps and inventory. He has completed a water plan, and is now working on an inventory of WKLUW\ Ă&#x20AC;YH PLOHV RI Â˛ HUD VHZHU

mainsâ&#x20AC;&#x201D;plus ten miles of force mains (sewer mains that take pumped wastewater, as opposed to gravity sewers). â&#x20AC;&#x153;I tied all water and sewer to the capital plan, which had never been done before,â&#x20AC;? he says. â&#x20AC;&#x153;The town used to look at Ă&#x20AC;UH Ă RZV RQO\ QR RQH ORRNHG DW WKH 120-year-old six- and eight-inch pipes.â&#x20AC;? Wetzelâ&#x20AC;&#x2122;s argument for pipe repairs is helped by enterprise fundsâ&#x20AC;&#x201D;and rates that account for the full cost of operationsâ&#x20AC;&#x201D;for water and sewer. But with average incomes in Ayer below the state DYHUDJH DQG D SRSXODWLRQ RI MXVW Ă&#x20AC;QDQFLDO HIĂ&#x20AC;FLHQF\ LV FULWLFDO 6R :HW]HO is linking pipe repairs with roadwork. This year, when the town reconstructs East Main Street for pedestrian safety, it will also address related pipes and stormwater infrastructure. â&#x20AC;&#x153;We spend RQ SDYLQJ URDGV HDFK \HDU Âľ he says. â&#x20AC;&#x153;We donâ&#x20AC;&#x2122;t want to dig them up DJDLQ WR Ă&#x20AC;[ ZDWHU RU VHZHU SLSHV Âľ As part of the East Main project, Wetzel hopes to obtain a federal agricultural grant to cover green stormwater infrastructure, and a Massachusetts Department of Transportation reimbursement for the safety improvements. Over several years, Wetzel wants funding for pipe replacement and repair moved from the capital budget to the operating budget. Once these twenty-year plans are complete, however, Ayer will have to start addressing mid-century asbestosconcrete water pipes that will be starting to fail, and Wetzel doesnâ&#x20AC;&#x2122;t yet know the longer-term sewer needs.

(Reprinted with permission from the Municipal Advocate.) 20

MUNICIPAL ADVOCATE Vol. 28, No. 1

SEPTEMBER, 2014

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August 2014 Insights By Sante Esposito Federal Advocates Inc.

FY15 Interior Appropriations Bill

t is certain that there will be a Continuing Resolution (CR) of the 11 appropriations bills; 8 have passed the House; none in the Senate. The only question is the duration of the CR. The choices are to extend FY14 funding until the end of 2014 or until sometime in February/March of 2015. On August 1, the Senate Appropriations Committee released a draft of its FY15 Interior Appropriations bill. Included are $1,448,800,000 for the Clean Water SRF, and $906,000,000 for the Safe Drinking Water SRF, the FY14 or current levels for both. The Senate has been our saving grace on funding. Absent action at some point by the Senate to increase SRF funding over the FY14 levels, a CR funding both SRF’s at the FY14 level would not be bad. No markup schedule on the Senate bill to date. As previously reported, on July 23, the House Appropriations Committee reported its version of the FY15 Interior Appropriations Bill. The bill provides $1.018 billion (the President’s budget number) for making capitalization grants for the Clean Water State Revolving Funds (@$430 million below the FY14 level) and $757 million (also the President’s budget number) for making capitalization grants for the Drinking Water State Revolving Funds (@$150 million below the FY14 level), with the proviso that not less than 20 percent of the funds made available for CWSRF grants shall be used for projects to address green infrastructure, water or energy efficiency improvements, or other environmentally innovative activities, and also with the proviso that funds made available for DWSRF grants may, at the discretion of each State, be used for projects to address green infrastructure, water or energy efficiency improvements, or other environmentally innovative

SEPTEMBER, 2014

activities. In justifying/defending funding levels below FY14, the Budget states that it “proposes a reduction to focus on communities most in need of assistance and continuing to allow financing of approximately $6 billion annually in wastewater and drinking water infrastructure projects. Nearly $60 billion has been provided for the programs to date, including over $21 billion since 2009. Going forward, EPA will continue efforts to target assistance to small and underserved communities that have a limited ability to repay loans, including Tribes.”

MAP-21 Reauthorization

n August 8, President Obama signed into law (Public Law 1113-159) the “Highway and Transportation Funding Act of 2014.” The law would transfer approximately $10.8 billion from the General Fund into the Highway Trust Fund (HTF) – $8.8 billion into the Highway Account and $2.0 billion into the Mass Transit Account – to keep the HTF solvent and provide funding for highway and transit programs at current levels through May 31, 2015. Given this action, there is very little likelihood of legislative action on reauthorization the rest of this year. continued on page 51

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Update continued from page 49

President Obama’s Recent Infrastructure Announcement

n July 17, during a visit and speech in Delaware, President Obama announced a new infrastructure financing initiative, “Build America Investment Initiative” designed to bring more private-sector dollars into transportation. The White House describes it as “a government-wide initiative to increase infrastructure investment and economic growth by engaging with state and local governments and private sector investors to encourage collaboration, expand the market for public-private partnerships (PPPs), and put federal credit programs to greater use.” The initiative includes plans for a “Build America Transportation Investment Center” to be housed at US DOT that will “serve as a one-stop shop for state and local governments, public and private developers and investors.” The Administration also created an interagency working group and held an infrastructure summit in Washington, D.C. on September 9. We monitored this event. The initiative does not include any new funding. continued on page 53

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Update continued from page 51

Legislation of Interest BLUMENAUER (D-OR-3) H.R.3582

bill to create a Water Protection and Reinvestment Trust Fund was introduced on November 21 with seven cosponsors on a bipartisan basis. The revenue base for the program would be a voluntary fee of 3 cents per bottle that would allow a drink producer to label the bottle with a seal that indicates support for clean water. It is uncertain how much revenue would be generated from the voluntary fee. Most of the funding created by the Water Protection and Reinvestment Act would be distributed as grants and loans through the existing Clean Water SRF. In addition, 20 percent of the funds in the Trust Fund would be used to finance a WIFIA program to provide low-cost capital to clean water infrastructure projects.

REID (D-NV) S.4 “Rebuild America Act”

he “Rebuild America Act” was introduced by the Majority Leader on January 22 with 14 cosponsors. The bill expresses the sense of the Senate that Congress should create jobs and support businesses while improving the nation's global competitiveness by modernizing and strengthening our national infrastructure; invest resources in transportation corridors that promote commerce and reduce congestion; update and enhance the U.S. network of rail, dams, and ports; develop innovative financing mechanisms for infrastructure to leverage federal funds with private sector partners; invest in critical infrastructure to reduce energy waste and bolster investment in clean energy jobs and industries; invest in clean energy technologies that help free the United States from its dependence on oil; eliminate wasteful tax subsidies that promote pollution and fail to reduce our reliance on foreign oil; spur innovation by facilitating the development of new cutting-edge broadband internet technology and improving internet access for all Americans; modernize, renovate, and repair elementary and secondary school buildings in order to support improved educational outcomes; invest in the nation's crumbling water infrastructure to protect public health and reduce pollution; upgrade and repair the nation's system of flood protection infrastructure to protect public safety; and invest in U.S. infrastructure to address vulnerabilities to natural disasters and the impacts of extreme weather.

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BISHOP (D-NY-1) H.R.1877 – “Water Quality Protection and Job Creation Act”

n May 8, with 27 cosponsors (now 40) on a bipartisan basis, Representative Timothy Bishop (D-NY) introduced a bill that would amend the Clean Water Act to establish a Federal trust fund to finance improvements to publicly owned treatment works. H.R.1877 would also authorize $13.8 billion over five years for the Clean Water Act State Revolving Loan Fund (SRF) program. The SRF monies would be available to states and municipalities to build publicly-owned treatment works, repair or replace decentralized wastewater treatment systems, reduce water demand through conservation efforts, manage non-point source pollution, and adopt energy conservation measures. Another $600 million would be authorized over five years to assist municipalities in managing storm water through green infrastructure and other approaches to controlling runoff from urban areas. The bill would require a state or municipal government to award all contracts for architectural, engineering, surveying, and other design services for projects funded by the legislation with the Federal qualifications-based selection (QBS) process under the Brooks-Architect Engineers Act of 1972. n

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John E. Merchant, CPA

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IN THIS ISSUE: • Passive Investing is Moving Up • Inherited IRAs in Bankruptcy • Deducting Foreign Business Travel

Smart Tax, Business & Plannin

Passive Investing Is Moving Up

roadly speaking, investors have two types of strategies to pursue: active and passive. Recently, passive investing has gained popularity. In 2013, for example, net investments into passive equity funds topped $60 billion, versus $3.4 billion for active funds. Should you be an active or a passive investor, or should you use both methods? To make an informed decision, you should know the background. Sitting on a Benchmark

Historically, investing was an active endeavor, in today’s terms. (This discussion will focus on stocks, but the principles apply to all investment securities.) Example 1: In the early 20th century, young John Smith could pick his own stocks, perhaps based on the proverbial hot tip, or he could buy stocks suggested by his securities broker. In the middle of the century, John’s choices expanded. He could hire a professional money manager to pick stocks for him (assuming John had a sizable amount to invest), or he could put his money into a publicly offered fund and let the fund manager select the fund for him. In all of these modes, John hoped that the stocks he owned, directly or through a fund, performed well. He was following an active investment strategy. When the 20th century moved toward its end, investors had another option: They could invest in an index fund. Such funds do not rely on stock picking;

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they allow individuals and institutions to invest in a broad segment of the stock market. Example 2: John’s granddaughter Sue Jones decided to invest in a fund that tracks the S&P 500 Index, a benchmark for large company U.S. stocks. This fund (and Sue, as a shareholder) holds the stocks in the index. As the broad stock market goes up or down, the value of Sue’s investment flows and ebbs. As mentioned, index funds, such as the one in which Sue invests, have become widespread. You can find funds tracking indexes of bonds, small company stocks, foreign stocks and other asset classes.

Assessing Their Appeal With an index fund, you are assured of participating in market moves. When large company U.S. stocks move up by 30%, as they did in 2013, you’ll Sitting on a benchmark continued on page 59

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Financial Management continued from page 57 get that return with an index fund tracking the S&P 500. You won’t fall short, as you would with an active manager who picked the wrong stocks. Index funds tend to have low expenses because they don’t have to support research staffs. In addition, index funds often hold onto the same stocks, so they may not generate unwelcome tax bills from taking gains. Perhaps most important, many active managers have lagged index returns over long time periods. Although investors have tried, there apparently is no certain way to predict which active managers will beat their benchmarks in the future.

Weighty Woes With all of the advantages of passive investing, why go active? For one reason, there will be some active managers who deliver returns greater than their benchmark indexes over the next 10 or 20 years or longer. Even modest outperformance can make a huge difference in long-term wealth building. In an index fund, you have no chance of profiting from a wise manager selection. In addition, major market indexes are primarily “cap weighted,” that is, the stocks in such indexes are held in proportion to the total market value of their shares. (See the “Weight Watching” Trusted Advice box.) At times, cap weighted indexes become heavily tilted towards tech stocks, oil companies, banks, or whichever market sector is in favor. Rising prices boost market capitalization for such companies. When these companies lose some appeal, as inevitably happens, the index may drop sharply, pulling down index funds.

Seeking a Better Blend Some investment companies have attempted to improve the performance of traditional cap weighted index funds by devising “enhanced” indexes, then offering funds to track those indexes.

These include equal weighted indexes: each stock in an S&P 500 index fund might be represented by 1/500 of the fund’s assets, for instance. Alternatively, major indexes might be tweaked to give more weight to stocks that pay dividends or to stocks that historically have been less volatile than the broad market. These enhanced index funds have an active component: They’re designed to accentuate some attribute the fund sponsor believes will improve results. Many enhanced index funds are relatively new, so it may be too soon to judge the success of these efforts. However, the basic rule applies to all funds, whether they’re active or passive or somewhere in between. Before investing, you should know how the fund will operate and be comfortable with its approach. continued on page 60

Trusted Advice Weight Watching An example can illustrate capitalization weighting of index funds. • Vanguard 500 Index Fund, a market cap mutual fund, has over 3% of its assets invested in Apple stock (its largest holding), as of this writing. • This indicates that the value of all Apple shares is roughly 3% of the value of all the shares in the benchmark S&P 500 Index. • The 10 largest holdings of this fund (including Apple, ExxonMobil, Google, and Microsoft) make up more than 18% of the fund’s assets, even though they are only 2% of the approximately 500 companies in the index.

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Financial Management continued from page 59

Inherited IRAs in Bankruptcy

nder federal law (and under the laws of most states), retirement plans such as IRAs enjoy some protection in bankruptcy proceedings. Does that same protection apply to inherited IRAs? The issue has been disputed in many court cases in recent years with mixed verdicts. Finally, in June 2014, the U.S. Supreme Court unanimously decided that bankruptcy creditors may have access to these accounts (Clark v. Rameker, No. 13–299 (U.S. 6/12/14)). This ruling has implications for IRA owners as well as for the beneficiaries of such accounts. In this case, Ruth Heffron held over $450,000 in her IRA. If Ruth had declared bankruptcy, she probably could have kept certain IRA assets.“Allowing debtors to

protect funds in traditional and Roth IRAs ensures that debtors will be able to meet their basic needs during their retirement years,” the Supreme Court noted. Keeping some assets from bankruptcy creditors helps debtors “obtain a fresh start,” reducing the chance that these debtors will be “left destitute and a public charge.” Beneficiary Battle Many IRAs still hold assets when the owner dies. Then, the IRA may pass to the designated beneficiary. Here, after Ruth died, her daughter Heidi Heffron-Clark inherited the account. Nine years later, Heidi and her husband filed for bankruptcy. The couple asserted that the funds in Heidi’s inherited IRA, which now amounted to almost $300,000, should be exempt from creditors’ claims. In such cases, debtors have prevailed some of the time. Retirement funds held in tax-exempt retirement continued on page 61

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Financial Management continued from page 60 accounts are protected in bankruptcy, some courts have ruled, and the funds in an Individual Retirement Account remain retirement funds even after they pass to a beneficiary and are held in an inherited IRA. Other courts, including the one ruling on Heidi’s case, found that funds in an inherited IRA are no longer retirement funds because the funds are not specifically set aside for use by the beneficiary in retirement. Thus, they are not protected in bankruptcy. Heidi and her husband appealed to the Supreme Court, which upheld the ruling against them. In favoring the creditors in this case, the Supreme Court gave several reasons why funds held in an inherited IRA are not funds set aside for retirement purposes. First, a beneficiary can’t contribute to an inherited IRA. An individual can put money into a Roth or traditional IRA via annual contributions or direct transfers or rollovers from other retirement accounts. Indeed, various tax incentives encourage such contributions. As its second reason, the Court noted that beneficiaries are required to take minimum distributions from inherited IRAs, even if they are many years from retirement. Traditional IRA owners face required distributions only after age 701⁄2, when they are likely to

be retired, and Roth IRA owners never have to withdraw funds. Finally, the Court noted that “the holder of an inherited IRA may withdraw the entire balance of the account at any time—and use it for any purpose—without penalty.” Traditional and Roth IRA owners, on the other hand, generally are subject to penalties for early withdrawals before age 591⁄2.

Points to Consider After this decision, people who declare bankruptcy can’t expect to protect inherited IRAs from creditors. Therefore, IRA owners should review their choice of IRA beneficiaries. If a future bankruptcy filing by a beneficiary is a concern, you might designate an irrevocable trust as the beneficiary of your IRA and name your human heir as the trust beneficiary. Such a procedure may increase the chance that the IRA will enjoy protection in bankruptcy. Moreover, surviving spouses who inherit an IRA from the other spouse might be affected by this decision. A spousal beneficiary “may roll over the IRA funds into his or her own IRA, or he or she may keep the IRA as an inherited IRA,” the Supreme Court observed. Once the IRA has been rolled over into the surviving spouse’s own IRA, it probably will be protected in bankruptcy. continued on page 62

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Financial Management continued from page 61 Still, some spousal beneficiaries choose to keep the account as an inherited IRA. That’s often the case if the survivor intends to take withdrawals before age 591/2 and wants to avoid a 10% early withdrawal penalty. The Supreme Court’s decision does not indicate whether an inherited IRA held by a surviving spouse would get bankruptcy protection, but all of the reasons cited to disallow such protections—no future contributions, required minimum distributions at any age, no penalties for early distributions—apply to inherited IRAs held by a surviving spouse. Therefore, any widow or widower who is considering leaving a deceased spouse’s IRA as an inherited IRA might discuss creditor protection issues with a knowledgeable attorney.

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Finally, you should keep in mind that the Supreme Court’s decision applies to bankruptcy cases, not other types of creditors’ claims. In nonbankruptcy litigation, state law usually will determine whether inherited IRAs are protected from creditors. Some states specifically protect inherited IRAs, but most states have not passed relevant legislation. Again, you should consult with counsel if this is a concern. continued on page 63

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Financial Management continued from page 62

Deducting Foreign Business Travel

s the world shrinks, business owners may find themselves traveling to foreign destinations. Often, such trips are vital, leading to personal visits with suppliers and potential customers. Ideally, you’ll be able to deduct all your travel costs, but that may not be the case if you venture beyond the 50 states and Washington, D.C.

More Than One Week

Business trips longer than one week trigger another set of rules. As long as 75% or more of the trip’s total days are business days, you can deduct all your travel costs. Days traveling to and from your destination count as business days, for the purpose of reaching the 75% mark. Again, your costs for nonbusiness days are not tax deductible. If your trip is primarily for business, but you fail both the one week and the 75% tests for the travel, The Seven-Day Rule calculating your deduction becomes more compliIf you travel outside the U.S. for a week or less, cated. You can only deduct the business portion of your trip will be considered entirely for business, your cost of getting to and from your destination and even if you combine business and nonbusiness acmust allocate your travel time on a day-to-day basis tivities. Then, you can deduct all of your travel costs. between business days and nonbusiness days. A week, for this purpose, is seven consecutive days, Example 2: Henry Jackson owns a restaurant not counting the day you leave the U.S. supply business in Boston. He flies to Berlin on March Example 1: Denise Edwards has a clothing im7 for a conference and spends time there on business until March 17. That day, Henry flies to Brussels port business in Chicago. She travels to San Francisto see friends and tour the local museums. On March co on Tuesday, then flies to Hong Kong on Wednes24, he returns to Boston from Brussels. day. After spending Thursday and Friday in business discussions, Denise spends Saturday through TuesAs the IRS looks at Henry’s itinerary, it appears day sightseeing. She flies back to San Francisco on that Henry could have returned to Boston on March Wednesday and returns to Chicago on Thursday. 17, after completing his business. Thus, 11 days of the trip (March 7–17) count as business days while Here, Denise was not outside the U.S. for more the other seven days (March 18–24) are nonbusiness than a week. (The day she departed from San Francisdays. co does not count as a day outside the U. S.) Therefore, she can deduct all of her travel costs. She also can deWith this reasoning, 7 out of 18 days of the trip duct the cost of her stay in Hong Kong for the days she were nonbusiness days, so 7/18 of what it would have worked there but not her costs for her sightseeing days. cost him to travel roundtrip between Boston and Brussels is not tax deductible. Assume Henry’s total airfare costs were $2,000, whereas roundtrip airfare between Boston Call Your Nearest GENALCO Warehouse and Brussels would have been For These Supplies HYDRAULIC $1,500. Henry must subtract 7/18 GRADE 8 STROBE LIGHTS OIL NUTS & BOLTS of this roundtrip fare ($1,500 x WEATHER CAPS 7/18 AIR CLEANERS = $583) from his actual travel GREASE FITTINGS BUCKET TEETH expenses. Because Henry spent HYDRAULIC HOSE $2,000, subtracting $583 gives BUCKET LIPS him a $1,417 deduction for his EQUIPMENT PAINT BUCKETS airfare. He can deduct his costs CUTTING EDGES while in Berlin on business but CHAIN not his costs while in Brussels for SLINGS BACKUP BELLS other purposes. AIR, OIL & FUEL AND ALARMS FILTERS EXTREME ROTARY As you can see, calculating PRESSURE GREASE ASPHALT CUTTERS foreign business travel deductions GENALCO inc. 1-877-436-2526 can be complex. 55 years of service to New England Industry Needham Heights, MA So. Boston, MA Springfield, MA West Haven, CT Warwick, RI Reprinted from CPA Client FAX 781-449-6643 FAX 617-268-1290 FAX 413-781-3771 FAX 203-934-2580 FAX 401-736-9769 Bulletin. n

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Advertisers’ Index ATS Equipment, Inc. ...........................................................16 Albanese D&S, Inc...............................................................34 Allied Recycling Center.......................................................28 American Shoring, Inc..................................... Ins. Back Cvr. Boro Sand & Stone Corp......................................................29 Dennis K. Burke, Inc............................................................58 Concrete Systems, Inc..........................................................18 Dagle Electrical Construction, Corp......................................4 Darmody, Merlino & Co., LLP............................................33 DeSanctis Insurance Agency, Inc. .......................................27 Dig Safe System, Inc............................................................61 Doering Equipment Co., Inc.................................................29 The Driscoll Agency ............................................................15 EJ..........................................................................................48 Eastern Pipe Service, LLC.....................................................9 Eastern States Insurance Agency, Inc..................................56 T. L. Edwards, Inc................................................................59 Ferguson Waterworks...........................................................58 Foley Carrier Services, LLC..................................................9 Geod Consulting, Inc............................................................51 Genalco, Inc..........................................................................63 L. Guerini Group, Inc...........................................................36 HD Supply Waterworks..........................................................2 A. H. Harris & Sons, Inc. ................................................... 60 Hinckley Allen, LLP........................................................... 40 P. J. Keating Company............................................................8 P. A. Landers, Inc.................................................................23 Lawrence-Lynch Corp............................................................5 Lorusso Corp........................................................................56 Lorusso Heavy Equipment, LLC........................................ 46 Mabey, Inc............................................................................13 Mass Broken Stone Company...............................................49 Milton CAT...........................................................................26 Norfolk Power Equipment, Inc.............................................53 North East Shoring Equipment, LLC...................................54 NorthStar Insurance Services, Inc...................................... 44 Ocean State Oil.....................................................................54 Our Outhouses, Inc.................................................................5 Palmer Paving Corporation..................................................37 E. H. Perkins Construction Co., Inc.................................... 64 Podgurski Corp.....................................................................11 E. J. Prescott, Inc..............................................Ins. Front Cvr. Rain For Rent-New England................................................ 24 Read Custom Soils ...............................................................36 Rodman Ford Sales, Inc........................................................10 Rogers & Gray Insurance Agency, Inc...................................6 Schmidt Equipment, Inc.......................................... Back Cvr. The Scituate Companies.......................................................32 Scrap-It, Inc..........................................................................14 Shea Concrete Products........................................................52 Smith Print............................................................................54 Starkweather & Shepley Ins. Brokerage, Inc.......................51 Sunbelt Rentals/Pump & Power Services............................50 Systems Support Corporation...............................................19 Taylor Oil Company.............................................................62 Ti-SALES, Inc. ....................................................................56 Albert J. Tonry & Co., Inc....................................................62 United Concrete Products, Inc. ............................................35 United Rentals Trench Safety...............................................12 C. N. Wood Co., Inc. ............................................................22 Woodco Machinery, Inc.......................................................38

“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

SEPTEMBER, 2014

from Design to Delivery American Shoring is the Leader in High Quality, ModularTrench Shoring A complete line of heavy duty and light weight aluminum or steel trench shoring is available for all your needs. Our staff is waiting for your call with professional advice to recommend the best specific product for your project. Field service support and supervision available with on site assembly and take down. Inquire about our Competent Person, Confined Space & OSHA 10 training classes. All systems are manufactured in the USA.

207 Lake Street, Newburgh, NY 12550

1.800.407.4674 www.americanshoring.com E-Mail us at

sales@americanshoring.com In New England

SALES • RENTALS • SERVICE REPAIRS • TRADE-INS RECERTIFICATION

American Shoring of Massachusetts, Inc.

226 Cherry Street Shrewsbury, Mass 01545

508-842-2822 Fax: 508-842-2824

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City life isn’t for everyone. But the new 135G and 245G Excavators couldn’t be more at home. . But the new 135G and 245G Excavators couldn’t be more at home. Their reduced-tail-swing configuration opens up a TCihtyeliifreriesnd’ut fcoer dev-etrayiol-nsew ing configuration opens up a wide range of possibilities, making congested wide range of possibilities, making congested jobsites and working around obstacles a welcomed challenge. Coupled with their EPA-certified jInotbersim iteTsiear n4 denwgionerks,isnhgorat-rtohuronwdloowb-esftfaorctlecosnatrowlse, lacnodmspeadciocuhsa, qllueinetgcea.bsC, othuepy’llel kdeewpiytohutwhaenirtinEgPtAo-scteayrtoinfitehde jobsite, despite how easy Itnhetyerairm e toTiloeard4uepnag ndingeest ,toshthoertn-etxh t roonw e. Clo onwta-cetfufo s trotdcaoy.ntrols, and spacious, quiet cabs, they’ll keep you wanting to stay on the jobsite, despite how easy they are to load up and get to the next one. Contact us today.

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