Construction Outlook December 2012

A publication of the Utility Contractors’ Association of New England, Inc.

DECEMBER, 2012

Auctioneer Dan Flynn

• UCANE’s 2012 Wrap-Up • The Future of DBE Programs • The Value of Self-Disclosing and Remedying Environmmental Violations

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IN THIS ISSUE

OFFICERS President MARCO GIOIOSO P. Gioioso & Sons, Inc. President-Elect CHRISTOPHER WALSH W. Walsh Co., Inc. Treasurer JOHN OUR Robert B. Our Co., Inc. Secretary PAUL SCENNA Albanese D&S, Inc.

BOARD OF DIRECTORS MARCELLA ALBANESE Albanese Bros., Inc. VINCENT BARLETTA Barletta Heavy Division MICHAEL BISZKO, III Biszko Contracting Corp.

TONY BORRELLI Celco Construction Corp.

STEVEN COMOLETTI P. Caliacco Corp.

MAUREEN DAGLE Dagle Electrical Const., Corp.

ADAM DeSANCTIS DeSanctis Ins. Agency, Inc. THOMAS DESCOTEAUX R. H. White Const. Co., Inc. JERRY GAGLIARDUCCI Gagliarducci Construction, Inc. BILL IRWIN C.J.P. & Sons Const. Co., Inc. PHIL JASSET Honorary Board Member BILL KEAVENEY A. R. Belli, Inc. ROBERT LEE J. F. White Contracting Co. RYAN McCOURT McCourt Construction Co. AL MORTEO FED. CORP. JOSEPH PACELLA RJV Construction Corp.

BRIAN RAWSTON Jay Cashman, Inc. LOUIS SCHOOLCRAFT Ti-SALES, Inc. JOHN WALSH, III Walsh Contracting Corp.

ANNE KLAYMAN

Executive Director

3 President’s Message:

Thank You for the Opportunity to Serve as UCANE President

5 UCANE’s 2012 Wrap-Up 9 UCANE’s 2nd Annual Appreciation Night Trade Show 11 Legislative Update: • Revenues Fall Below Collections Necessary to Fund Fiscal Year 2013 Budget • Patrick-Murray Administration Aims to Establish Framework to Better Protect Water Resources Across the Commonwealth • Reshuffling of Patrick-Murray Administration in 2013-2014 Session • Transportation Financing Appears Poised to Dominate First Half of 2013

17 UCANE Welcomes The Following New Members 19 Legal Corner:

The Future of DBE Programs

23 Labor Issues:

The Massachusetts Prevailing Wage Law: Bituminous Concrete, “Gravel,” “Fill,” and Waiting Areas

28 UCANE’s Annual Christmas Party & Scholarship Auction 30 A World of Thanks to Those Who Continue to Support Our Scholarship Program 37 UCANE’s 2013 Scholarship Applications Now Available 39 Benefits & HR Strategies:

Health Care Reform Compliance Update: New Guidance on Counting Full-Time Employees

43 Leukemia & Lymphoma Society’s “Gala for a Cure” 45 Environmental Viewpoint:

The Value of Self-Disclosing and Remedying Environmental Violations

47 Financial Management: • • • • • •

Back to the Brink Planning Ahead for the 3.8% Surtax Year-End Tax Planning for Investors Year-End Tax Planning for IRA’s Year-End Estate Tax Planning Year-End Tax Planning for Business Owners

Editor: Anne Klayman, Associate Editor: Suzanne Savage, Graphic Designer: Sherri Klayman Construction Outlook Chairman: Marco Gioioso Editorial Board: Marco Gioioso, Christopher Walsh, 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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Thank You for the Opportunity to Serve as UCANE President As I reflect on my two years as UCANE President, I realize how important it is for contractors and suppliers to be active in the trade from which they derive their livelihood. I know this has been said many times before, but until I actually got involved in UCANE, I didn’t realize how important it was to me and my company.

M

ost of us are preoccupied with our own businesses and the problems that arise on a daily basis. We don’t realize that others are proposing rules, regulations and laws that can significantly impact the way we do business.

I believe the best way to avoid being blindsided is to join a construction trade association in order to stay informed about industry changes that arise and to stay on top of things. I would also suggest joining a committee or running for an office so that you can become part of the decision making process.

The concerns I had back in January of 2011 as I headed into my first Board Meeting as UCANE President quickly diminished when I was able to contribute my construction experience and knowledge to help make our Association stronger and more effective. Working with my peers not only helped me personally, but collectively affected every other contractor doing work in New England…whether a UCANE member or not.

As my second term as President comes to a close, my plan for the future is to remain actively involved in UCANE. It has become obvious to me after seeing the respect that our members received from everyone they met with…elected officials, legislators, state agency officials and authorities, including the

business and environmental communities as well as other associations…that UCANE is a very unique organization. And being an active member, and continuing to contribute to its growth is extremely worthwhile to me and my business.

I would like to thank all the members I worked with on so many issues, and especially our Officers and Board Members, for their support during the past two years. I’d also like to thank the UCANE staff for their outstanding commitment to our Association. They have made my term as UCANE President a truly rewarding experience.

In addition, I want to extend my sincere congratulations to incoming President Al Morteo, and pledge to work closely with him in the coming year.

I would like to say to any UCANE member who is thinking about running for office or wants to become a Board Member…“Just Do It! You have something to offer and we want to hear what you have to say.” New ideas are the “Life Blood” of our Association.

(Please refer to page 5 for UCANE’S 2012 Wrap-Up.)

DECEMBER, 2012

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MA State Legislative and Industry Initiatives • DCAM Construction Law Working Group: Attended meetings with other Association, Industry & business groups at MA AG’s office to discuss ways to improve existing construction regulations.

• New DEP/DBE Requirements: As a subcommittee member, UCANE met with representatives of the MWRA, MassDEP, DOT and others to formulate DBE contract language that was clearer and less complicated, but that reached the goals set by state law.

• Diesel Retrofit Law: Worked with representatives from the EPA, MassDEP, various cities and legislative committees to develop methods to allow contractors to be in compliance with regulations. Retrofits are the responsibility of contractors and being in compliance is the only way to prevent fines and job shutdowns.

• Asbestos Training Course: UCANE, ATC and contractors worked together to develop an 8 hour (reduced from 16 hours) certifiable Asbestos Pipe Removal Course which was approved by OSHA, and the MA Department of Labor Standards (DLS) and MassDEP. The Asbestos Project Checklist which defines all the procedures required is available at the UCANE office. The UCANE staff is also available to answer any members’ asbestos related questions.

The UCANE developed and sponsored course allows contractors’ employees to handle non-friable asbestos pipe in a cost effective and safe manner.

During 2012 training and certificates were provided to 35 firms and a total of 234 individuals. Additional training courses will be held throughout 2013.

• Water Infrastructure Finance Commission (WIFC): Created by the MA Legislature, yearlong WIFC meetings were attended by UCANE appointed staff, UCANE lobbyist Mark Molloy and contractor members to discuss and write a report on the Clean Water and Drinking Water Needs for Massachusetts over the next two decades. This working group identified a gap of over $21 billion in project funding over the next 20 years.

In 2013, the participants will discuss alternative sources to fund future water and sewer projects and will write a final report detailing their conclusions.

DECEMBER, 2012

• Regionalization of Cape Cod Underground Infrastructure: UCANE continues to monitor the progress of this issue as more and more Cape Cod counties have concluded that the problem is serious, and that something has to be done to stop nitrogen pollution of its waterways and also to provide wastewater treatment. UCANE attended meetings on the Cape when these issues were being discussed. The main discussion centers on a town-by-town or county solution, or a regional approach. The Conservation Law Foundation (CLF) filed a Clean Water Act (CWA) lawsuit in mid 2010 for failure of the EPA to fulfill its obligation to oversee a plan to mitigate nitrogen pollution. A Court decision is expected in 2013. Protecting the Cape’s environment and keeping it a major tourist attraction and economic resource will become a high priority in the next few years, and much of the work that will need to be done will be performed by UCANE members.

• Monthly Job Bid/Project Report:

UCANE developed a monthly jobs bid/project report which will give contractors bidding jobs more visibility and allow them to better manage their resources.

The information provided will also serve UCANE by helping our Association to educate elected officials and the public.

• Utility Company Imposed Blasting Regulations: UCANE members held several meetings with engineers, utility company representatives and town officials to resolve utility companies imposing, on municipalities and contractors performing water or sewer projects, their own blasting regulations which were different or more stringent than required by state law. UCANE was able to establish MA blasting regulations as the legal requirement, and require any proposed changes to be supported by test data and implemented according to standard procedures. This effort now allows cities and towns to resist imposing additional blasting requirements on contractors. continued on page 7

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• U.S. News and Best Lawyers considered almost 10,000 law firms in 177 metropolitan locations • 9,633 clients provided over 3.9 million evaluations * Source: U.S. News Media Group and Best Lawyers

Many thanks to our clients, peers and friends whose comments contributed to our national ranking.

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2012 Wrap-Up continued from page 5 • Developing Mass. Municipal Assn./UCANE Relationship: The Mass. Municipal Association (MMA) and UCANE have many issues that are of mutual interest. One of the most important issues relates to water and sewer projects, specifically the ability of a city or town to fund the project. To reinforce this relationship, UCANE is now publishing articles from the MMA newsletter in Construction Outlook magazine.

• Responsible Employer Ordinances (REOs): Continued our education program with letters to the 351 cities and towns in Massachuetts informing elected officials of the recent Fall River Federal Court decision making their REOs illegal. As a result, the City of Worcester rescinded its REOs on all Chapter 30-39M (water & sewer) projects.

The Merit Construction Alliance (MCA) then filed a lawsuit and won a Preliminary Injunction to stop the City of Quincy from implementing its REOs on a large construction project.

• Refiled Legislation: Advocated for the passage of UCANE sponsored legislation relative to Cost Adjustment, Interest on Retainage and “Dig Safe” modifications.

• MWRA: Met with MWRA officials throughout the year to discuss clean water and drinking water construction projects and funding.

• Attorney General: Regularly met with AG’s Staff to discuss issues of concern to the construction industry.

• Meetings: Attended meetings with various business, government and environmental organizations and state agencies to voice utility construction industry’s position on proposed laws and regulations.

OSHA and Safety Related Issues • Continued to monitor compliance of trench safety regulations implemented by the Department of Public Safety and Division of Occupational Safety.

• Had several discussions with DOS/DLS on general public trench safety issues and asbestos pipe removal regulations.

• Held Competent Person and Confined Space Entry training seminars.

• Monitored Crane & Derrick seminars with Crane Safety Institute to certify members as Signal Persons and Crane & Hoist Riggers as required by OSHA.

DECEMBER, 2012

Federal Legislative and Industry Initiatives • Clean Water Construction Coalition (CWCC) members worked with the House and Senate to maintain the Final 2012 SRF Appropriations for Wastewater ($1.468B) and Drinking Water ($919.36M). UCANE was pleased to work with Senator Kerry and Senator Brown to assure the passage of the maximum amount of funding for the 2013 SRF Budget.

• Vincent Barletta (Barletta Heavy Division) was reelected to the CWCC Steering Committee.

UCANE’s 1st Annual Trade Show • Held UCANE’s 1st Annual Trade Show as a way of thanking Construction Outlook advertisers. Twentyfive Associate member companies took advantage of a complimentary opportunity to set-up displays and handout literature of their products and services prior to the March Construction Forecast Dinner Meeting. Company representatives were able to meet and talk with many of UCANE’s contractors and their key personnel in a social setting. By all accounts it was a huge success. Our 2nd Annual Trade Show will be held at our March 27th Dinner Meeting. (See details on page 9.)

Dinner Meetings • Keynote speakers included MA Senate President Therese Murray and U.S. Senator Scott Brown.

• Held the 2012 Construction Forecast Meeting with MassDEP Deputy Commissioner of Operations and Environmental Compliance Gary Moran, MWRA Executive Director Fred Laskey, and BWSC Chief Engineer John Sullivan.

• Other meeting subjects included Asbestos Pipe Removal Regulations and REO Litigation Status.

Member Communications • Instituted a monthly e-newsletter to keep members informed of the latest construction and legislative related issues. As a complimentary feature to support our “Buy from UCANE Member Program” the e-newsletter includes, on a rotating basis, Construction Outlook advertisers.

• UCANE is launching its new website in January. It will make it easier for our members to access up to date information for all UCANE events, seminars and meetings. It will also include an e-version of Construction Outlook as well as all of our Construction Outlook advertisers. continued on page 9

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DECEMBER, 2012

2012 Wrap-Up continued from page 7

Awards & Presentations • Presented 2012 “Contractor Member of the Year Award” to Marco Gioioso, P. Gioioso & Sons, Inc. at UCANE’s 58th Annual Banquet.

• Presented 2012 “Associate Member of the Year Award” to Richard Hoffman, The Scituate Companies.

College Scholarship Program

• Awarded twelve $2,000 college scholarships to High School seniors who are the children of UCANE members and their employees.

• Held successful Christmas Party and Auction to support our Scholarship Program.

• Honored former UCANE members with “Memorial Scholarships.”

Charitable Events • Supported Leukemia & Lymphoma Society of MA 3rd Annual “Gala for a Cure” through Cochairs Al and Rosemary Morteo (FED. CORP.).

• Supported the Diabetes Foundation “High Hopes Gala” through Co-chairs Terri and Dale Pyatt (Jay Cashman, Inc.) • Supported fundraiser through the Joe Andruzzi Foundation to help battle cancer.

• Sponsored the Mystic River Herring Run & Paddle to support the Mystic River Watershed Association.

• Co-chaired successful 11th Annual Sojourner House Golf Tournament, a shelter for homeless families.

• Supported Pan-Mass Challenge through Tom Descoteaux (R. H. White Const. Co.) and Joel Lewin (Hinckley Allen Snyder, LLP) n

To our valued Construction Outlook Magazine Advertisers

UCANE’s 2nd Annual Appreciation Night Trade Show Wednesday Evening, March 27, 2013 prior to our Annual “Forecast” Dinner Meeting Four Points by Sheraton Hotel Norwood, MA Don’t miss this opportunity to meet with UCANE members and guests face-to-face.

Our tradeshow is being offered at no cost to Construction Outlook advertisers.

If you are not currently a Construction Outlook advertiser… we hope you will consider advertising. Our magazine showcases your products and services to contractors who use them.

For more information call Suzanne at the UCANE office for advertising rates.

DECEMBER, 2012

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Revenues Fall Below Collections Necessary to Fund Fiscal Year 2013 Budget overnor Deval Patrick announced in the start of December that decreased tax revenues will require him to exercise his authority to reduce budget appropriations to executive branch agencies under chapter 29, sections 5B and 9C of the Massachusetts General Laws. Under the authority referred to as “9C cuts”, Governor Patrick has reduced the state budget by $225 million, a 1 percent reduction to the total state budget that will result in the defunding of 700 positions in state government. Governor Patrick also called for $200 million to be drawn from the state’s $1.65 billion rainy day account to plug holes and prevent deeper spending cuts amid a weak economic recovery. In addition, Governor Patrick called on Congress to address the “fiscal cliff” this year, blaming uncertainty over scheduled tax hikes and spending cuts for private sector angst about expanding and the future of the economy.

In his letter to the Governor declaring concerns about the fiscal picture, Secretary of the Executive Office of Administration and Finance Jay Gonzalez stated: “Based on a comprehensive review and analysis of information now available to me, the revised tax revenue forecast for FY2013 is $21.496 billion. This revised tax revenue

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December, 2012

estimate for FY2013 represents a reduction of $515 million from the revenue estimate assumed in the fiscal year 2013 General Appropriations Act, which was based on the January 2012 consensus revenue estimate adjusted for subsequent tax law changes. After accounting for the fact that $25 million of tax collections received were one-time settlements in excess of $10 million which have already been dedicated for certain one-time costs, the total projected budgetary revenue shortfall that must be solved is $540 million.”

While asking the legislature and judiciary to voluntarily implement a 1% budget reduction, the Governor has also filed legislation seeking the authority to exercise 9C authority over local aid to municipalities. While justifying the need to reduce local aid, Governor Patrick recognizes the steep battle this may entail. The Massachusetts Municipal Association has historically fought and won previous efforts to wield this authority.

Of particular note to UCANE members, the Governor’s 9C cuts will zero out the legislature’s appropriation to the Commonwealth Sewer Rate Relief Fund, reduce the Department of Environmental Protection’s budget by $341,586 and eliminate funding for the Cape Cod Waste Water study. continued on page 13

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Legislative Update continued from page 11

Patrick-Murray Administration Aims to Establish Framework to Better Protect Water Resources Across the Commonwealth new plan to better protect the Commonwealth’s water resources has been unveiled by the Massachusetts Executive Office of Environmental Affairs (EEA). The plan encourages prudent use of water to balance the need for water consumption and increased economic development with the ecological health of the water body. The plan, while praised by various stakeholders, was met with skepticism from some environmental groups and municipalities who fear the plan will lead to increased water rates in the long term.

The framework, known as the Sustainable Water Management Initiative (SWMI), was released with the goal of maintaining healthy rivers and streams and improving degraded water resources over time.

While Massachusetts receives 44 inches of precipitation in an average year, the precipitation is not evenly distributed throughout the year. As a result, this amount of water does not meet both the wide variety of human and ecological needs and in some extreme cases, streams and rivers run dry.

According to the EEA, the final SWMI framework is a plan that will, for the first time, put in motion regulations that implement “stream-flow” criteria, which are science-based standards to ensure that streams do not dry up. In addition, the framework establishes a safe yield requirement that can be applied consistently and clearly across the Commonwealth.

As well, the framework uses a U.S. Geological Survey (USGS) peer-reviewed scientific model to better understand the relationship between water withdrawals and the health of streams and rivers, and to flag water basins that have been impacted by large water withdrawals and other human alterations. EEA and its agencies used the results of the USGS study to develop a method of categorizing habitats in the water sub-basins based on present natural and manmade conditions, including water withdrawals. As a result of these efforts, the SWMI framework includes: • Biological Categories: A categorization of the current condition of Massachusetts’ water sub-basins as affected by certain human alterations.

• Safe Yield: An element of MassDEP Water Management Act (WMA) permitting that limits

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the amount of water that can be withdrawn from a basin, includes an environmental protection factor, and is linked to stream-flow criteria.

• Science-based Stream-flow Criteria: To protect ecological uses and fish and wildlife by specifying flow alteration goals for rivers and streams, and corresponding mitigation requirements when water withdrawals impede these goals.

• Clear Permitting Pathway: Permitting categories or “tiers” that describe proposed requirements associated with seeking a water withdrawal permit and generally require mitigation if the withdrawal amount is significantly increased or minimization if it occurs in an impaired water basin. continued on page 15

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Legislative Update continued from page 13 According to the EEA this initiative is intended to encourage communities, that have not already done so, to make investments in water conservation, thereby saving money and making their local environment more attractive for residents. In situations where more water is needed by a supplier, the mitigation requirement will be designed to be fair and reasonable, and focused on water efficiencies and efforts to keep water discharged to the environment within its current watershed basin.

In order to further inform the agencies and water suppliers on how the framework will be implemented, four pilot projects - in Amherst, Danvers-Middleton, Dedham-Westwood, and Shrewsbury - were set up to test the on-the-ground impacts of the proposed framework and incorporate the lessons learned.

The SWMI effort that was launched in the fall of 2009 included a robust stakeholder process. In that time, 15 SWMI Advisory Committee meetings were held, along with 18 technical subcommittee meetings, and 15 workgroup meetings as the participants reviewed and debated the best available ideas to address water withdrawals.

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The Commonwealth’s goal is to have final regulations in place by December of 2013. Draft regulations being developed now will take into account the information derived from the four community pilot projects, and will be subject to full public review and comment. To accompany this effort, and to provide greater clarity to the permitting process, the state will develop a guide or handbook to the regulations that will incorporate the various SWMI elements to make the transition smooth and predictable.

For more information on the SWMI framework and water withdrawals under the WMA, go to: www.mass.gov/eea/swm.

Reshuffling of Patrick-Murray Administration in 2013-2014 Session overnor Patrick announced that Administration and Finance Secretary Jay Gonzalez, Health and Human Services Secretary JudyAnn Bigby, Public Safety Secretary Mary Beth Heffernan and Education Secretary Paul Reville will resign their positions in his Administration. As replacements, Health Insurance Connector Authority Executive Director Glen Shor will take over for Gonzalez, and Suffolk County Sheriff Andrea Cabral will replace Heffernan. John Polanowicz, the president of St. Elizabeth’s Medical Center, will become health and human services secretary. The Governor asked all of his Cabinet members, after the November election, to recommit for his final two years in office. With the potential appointment of Sheriff Cabral, the Governor must also appoint someone to complete her remaining term as Suffolk County Sheriff.

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In the coming weeks, the Patrick-Murray Administration plans to announce more personnel changes at varying levels within the executive branch. Already, the Governor’s Chief of Staff, Mo Cowan, announced his return to the private sector in January. He will be replaced by Patrick’s communications director Brendan Ryan, a longtime aide and advisor since the governor’s first campaign.

With the potential appointment of United State Senator John Kerry to the Obama Administration, there is the further potential for considerable political change in 2013. continued on page 16

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Legislative Update continued from page 15

Transportation Financing Appears Poised to Dominate First Half of 2013

s the end of the legislative session for 2011-2012 approaches, the beginning of the Massachusetts legislature’s 2013-2014 session will see the need to address the problem of transportation financing. With the Massachusetts Bay Transportation Authority (MBTA) facing a significant financial shortfall in mid-2013, elected officials will be forced to consider some form of revenue generation.

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To that end, the Boston Globe recently highlighted the report of a coalition of community activists and labor organizations who are recommending a small payroll tax be approved to help pay for chronically underfunded public transit services in Massachusetts. The report prepared by Public Transit-Public Good coalition also calls for a more equitable fare structure that would give breaks to low-income riders. In suggesting a 0.75 payroll tax on workers earning more than $100,000, with the revenue dedicated to paying off debt from the Big Dig and helping fund the MBTA and other regional transit system, the report signals that conversation about finding a lasting solution to the state’s transportation woes is heating up.

Among other ideas being bandied about are increases to the Commonwealth’s fuel taxes, an increase to the sales tax, an increase to the online sales tax, an increase in income tax or a significant increase in fares and fees. While no one idea has come to the fore, there is general consensus that the legislature will not be able to simply fund a solution for the MBTA alone.

Many communities outside of the MBTA service system have decried the need to fund the MBTA system on the backs of their residents. Accordingly, there has been a push to ensure that any proposed funding

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solution include regional transit authorities or regional transportation modalities as part of a comprehensive transportation funding plan.

Governor Patrick, who has expressed some skepticism that his previous plan to increase gas taxes would be enough of a solution or even palatable, is expected to announce his Administration’s proposed remedy at the start of the new year. n

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DECEMBER,1/6/12 20122:56 PM

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P. O. Box 454 Wilmington, MA 01887 Rep: Wayne Tarr Tel: 978.658.5300 Fax: 978.203.0664 Email: wtarr@beneventocompanies.com Web: www.beneventocompanies.com ASSOCIATE

34 Twin Maple Road Bolton, MA 01740 Rep: Michael W. Kane Tel: 978.634.1054 Fax: 978.634.1054 Email: mkane@kaneengineering.com Web: www.kaneengineering.com ASSOCIATE Referred by: Bob Lee & Bob Berry, J. F. White Contracting Co.

Freshwater Consulting, LLC 92 Vermont Street West Roxbury, MA 02132 Rep: Charlie Button Tel: 617.325.9229 Fax: 617.325.9229 Email: aquacon@verizon.net ASSOCIATE

GZA GeoEnvironmental, Inc. One Edgewater Drive Norwood, MA 02062 Rep: Adam Swederskas Tel: 781.278.3700 Fax: 781.278.5701 Email: adam.swederskas@gza.com Web: www.gza.com ASSOCIATE

JESCO 167 Memorial Drive Shrewsbury, MA 01545 Rep: Warren Hagenbuch Tel: 508.719.0200 Fax: 508.719.0202 Email: warren.hagenbuch@jesco.us Web: www.jesco.us ASSOCIATE

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Patriot Petroleum, Inc. 44 Merrimac Street Newburyport, MA 01950 Rep: Jayne Peng Tel: 978.462.5544 Fax: 978.462.6140 Email: jaynep@patriot-petroleum Web: www.patriot-petroleum.com ASSOCIATE Referred by: Mark O’Leary, Taylor Oil Company

Pedigree Technologies 5 Virginia Drive Lakeville, MA 02347 Rep: Richard Medeiros Tel: 774.273.3199 Email: rich.medeiros@ pedigreetechnologies.com Web: www.pedigreetechnologies.com ASSOCIATE Referred by: Tom Fish, Equipment4Rent

Southern Redi-Mix Corporation 490 Winthrop Street Taunton, MA 02780 Rep: Greg Keelan Tel: 508.967.2348 Fax: 508.967.2349 Email: gregkeelan@gmail.com Web: www.southernredimix.com ASSOCIATE

Systems Support Corp.

462 Plain Street Marshfield, MA 02050 Rep: Brian MacFee Tel: 781.837.0069 Email: bmacfee@systemsupport.com Web: www.systemsupport.com ASSOCIATE Referred by Jim D’Amico, J. D’Amico, Inc.

World Diamond Source 2987 Center Port Circle Pompano Beach, FL 33308 Rep: Joseph Farinelli Tel: 203.683.6233 Fax: 954.786.1126 Email: jbfarinelli@worlddiamondsource.com Web: www.worlddiamondsource.com ASSOCIATE

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169-B Memorial Drive Shrewsbury, MA 01545 508-842-3790

Charles E. Schaub, Jr. Esq., Hinckley Allen Snyder LLP

The Future of DBE Programs My last month’s article was a press release from the US Attorney in Massachusetts that outlined the disastrous consequences a general contractor, together with the principal of a DBE, would face for participating in what was described as “fraud”, whereby the DBE was treated as a “broker” who did not perform any “commercially useful function” on a project.

This press release was published to get your attention and to emphasize the significant negative ramifications of not complying with, and properly dealing with the set-aside requirements on virtually all-public projects.

This month’s article is going to feature a recent event that may have significant negative repercussions with respect to the future of DBE programs.

BE programs have been around since the 1960s, first by Executive Orders of the President of the United States, and subsequently from the Governor(s) of Massachusetts. Since the programs began, there have been court challenges by contractors and others claiming “reverse discrimination”. The claim was that such programs were unconstitutional as they discriminated against other citizens.

The Supreme Court of the United States subsequently began to consider these cases on a periodic basis. Affirmative action programs were initially approved but the court began to impose limitations upon their use and required stringent criteria in order to justify such a program. The Supreme Court used language such as, “the programs would be subject to “strict constitutional scrutiny” and “narrow application”.” Last summer, the Supreme Court accepted another challenge to affirmative action programs in-

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DECEMBER, 2012

volving a race preference arrangement that existed in admission to the University of Texas Law School.

The Supreme Court accepted the case despite the opposition of the Solicitor General of the United States and other groups. Oral arguments were held on October 10, 2012. With the current makeup of the Supreme Court, it may now be conservative enough that they might overturn this type of preference. The expectation of knowledgeable followers of the Supreme Court is that the set aside programs will be further restricted or potentially declared unconstitutional. The decision will not be made until the spring of 2013. Even if the decision does improve substantial restrictions, or voids the set-aside program, it may not be immediately effective in construction projects, although it will certainly follow.

In the interim, contractors must be very careful to avoid the traps and pitfalls of not fully comcontinued on page 21

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Legal Corner continued from page 19 prehending and implementing the regulations as to what is needed from a DBE, in order not to run afoul of the statutes and regulations. There can be no shortcuts. There can be no brokers. The DBE must perform a commercially useful function. Even items such as joint checks must be carefully reviewed and discussed with the awarding authority before their use.

I would also strongly suggest that if you currently do not have a compliance program, that you adopt one.

It’s required for contractors performing federal work and it is expected that it will be implemented at some point within Massachusetts. It also provides a potential safe harbor for corporations, should an employee not follow through and creates problems not only with respect to DBEs, but also false claims in other areas within the regulatory minefield for construction. n

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DECEMBER, 2012 6/8/12

3:11 PM

Richard Wayne, Esq., Hinckley Allen Snyder, LLP

The Massachusetts Prevailing Wage Law: Bituminous Concrete, “Gravel,” “Fill,” and Waiting Areas ruckdriver, Sandra Kuehl, brought suit against her employer, and its general manager alleging, among other things, they violated various sections of the Massachusetts Prevailing Wage Rate Law, MGL c.149 §26 et seq. (PWRL), the Massachusetts Non-Payment of Wage statute MGL c. 149 §148 (NPW); and the Massachusetts Overtime law (OT Law) MGL c.151A §1A. The primary issues presented included: 1. Would it be appropriate to decide the case as a Class Action?

2. Had the employer maintained accurate hours of work records for purposes of the PWRL, NPW and OT Law; 3. Although the Plaintiff conceded Prevailing Wage (PW) was not required to be paid for delivery of bituminous concrete to the site, was time spent in a “waiting area”, either on or off the site, working time entitled to PW; and 4. Were the materials the Plaintiff claimed to be either “gravel” or “fill,” as a matter of fact and law really “gravel and “fill” requiring PW to be paid for time on site and travel time?

The claim was brought as a private right of action. Under the PWRL, NPW law, and OT Law, a plaintiff who successfully brings a private right of action may recover three (3) years of unpaid wages, including any overtime, treble damages and attorney’s fees. Concurrently, the Massachusetts Office of the Attorney General (OAG) may bring suit for the employees’ restitution, including overtime, issue civil or criminal citations, and seek debarment.

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DECEMBER, 2012

In 2012, a Superior Court Judge answered these questions.

1. As to the Class Action question, the Superior Court judge certified the case as a Class Action. As a consequence, should the Plaintiff prevail and after an entry of a Final Judgment, each similarly situated co-worker would be entitled to back pay, overtime and treble damages.

2. As to the accuracy of the employer’s time records, the employer’s defense rested in part upon the fact it had entered into an understanding with the Massachusetts Highway Department (MHD) permitting it, on paving projects, for a normal shift, to pay truck drivers: (a) one (1) PW hour for on-site work related to delivery of bituminous concrete; (b) two (2) PW hours pay for on-site milling, grinding, scarifying, and associated hand paving; and (c) four (4) PW hours pay for a truck driver who worked on site in conjunction with backhoe excavation (“set time”).

Despite the employer’s compliance with its agreement with MHD, the Court held, its employees were not bound by that agreement.

In addition, the Court ruled the employer’s records were inaccurate because “set times” assigned to varying working times do not establish “accurate” time records. This inaccuracy of time records was further compounded by the Court’s expansive resolution of the “waiting area” issue, and the definitions it and continued on page 25

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23

Labor Issues continued from page 23 DLS would later give the terms “gravel” or “fill,” see below.

3. As to the “waiting area” issue, the Court held this issue had not been expressly addressed by prior Massachusetts Supreme Judicial Court decisions, for example, the Supreme Judicial Court’s (SJC) CIM v. Department of Labor and Industries, Inc., 406 Mass 162 (1989) which dealt with the issue of whether deliveries of bituminious concrete were subject to the PWRL. (It had answered that question in the affirmative.)

To resolve the waiting area issue, the Superior Court Judge fashioned a definition of “on site” that went beyond the literal or physical limits of the construction site. He found this employer’s “waiting area” to be legally “on site” because it began the truck driver - construction worker cooperation necessary to build a public work. He offered a narrow interpretation of Teamsters Joint Council No. 16 v. Director of the Department of Labor Workforce Development (Palmer Paving), 447 Mass 100, 110 (2006) (DOS Commissioner rejects PW for travel time for delivery of bituminous concrete). He relied upon several excerpts from the Executive Office of Labor and Workforce Development (EOLWD) 2006 Topical Outline and the employer’s statements admitting it exercised control over the drivers as soon as they arrived at the designated waiting area to find a truck driver’s presence in the waiting area PW compensable time.

Despite this finding, he invited the parties to solicit an opinion from DLS (formerly the Division of Occupational Safety (DOS) and DOLI). (DLS is charged by statute with administering the PWRL. The parties requested a DLS opinion, but neither requested a hearing.) On February 22, 2012, the DLS, in an Opinion Letter, concurred with the Superior Court Judge’s decision.

This expansive definition of “onsite” may conflict with the express language of the statute and prior court interpretations. While Kuehl is an opinion of only one (1) Superior Court Judge, interpretations offered by DLS, an agency charged by the Legislature with enforcing the PW statute, are entitled to deference. While limited to the facts of the case, an employer puts itself at risk by failing to follow this DLS interpretation.

4. In regard to defining the terms “gravel” and “fill,” the Superior Court Judge reviewed the

DECEMBER, 2012

PWRL. “Gravel” and “fill” are the only materials specifically referenced in the statute, but they are undefined. He noted no Massachusetts court or administrative agency responsible for the PWRL had defined either term.

Rather than defining these terms, he suggested the parties refer these issues to DLS. In its February 22, 2012 Opinion Letter, DLS acknowledged that the terms “gravel” and “fill” were first introduced into the PWRL by amendment in 1973.

This amendment reads in pertinent part: “The commissioner shall prepare, for the use of such public officials or public bodies whose duty it shall be to cause public works to be constructed, a list of the several jobs usually performed on various types of public works upon which mechanics and apprentices, teamsters, chauffeurs and laborers are employed, including the transportation of gravel or fill to the site of said public works or the removal of surplus gravel or fill from such site.”

The PWRL amendment continues: “Such rates shall apply to all persons engaged in transportation of gravel or fill to the site of said public works or removing gravel and fill from such site, regardless of whether such persons are emcontinued on page 26

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Labor Issues continued from page 25 ployed by a contractor or subcontractor or are independent contractors or owner-operators.”

Relying on the Concise Oxford American Dictionary, and providing a liberal interpretation of a 1998 DOS Opinion Letter, DLS defined the term “gravel” as follows: “…The term ‘gravel’ under the Prevailing Wage Law includes materials which consist of similar rounded stones with a mixture of sand.

In addition, the DLS will continue to consider crushed stone as “gravel” for purposes of the Prevailing Wage Law. See Letter to Richard Wayne (dated February 2, 1998).”

Two observations: (1) the dictionary definition distinguishes “gravel” from “aggregate”; and (2) the letter from Wayne to DOS argued crushed stone was not gravel, but a manufactured product, but offered no extrinsic evidence. In response to that letter, DOS simply wrote absent “strong evidence” to the contrary, crushed stone would be presumed by DOS to be gravel. There was no hearing. In sum, DLS expanded upon the dictionary definition of “gravel” as a rounded natural stone, and created a rebuttable presumption that crushed stone will be included in the definition of “gravel” unless that presumption is rebutted by “strong” evidence (put forward by an employer

or interested person), Employers retain the means to rebut that presumption, but what level of evidence will be necessary to rebut that presumption and convince either DLS or a court, is uncertain.

As to the term “fill,” DLS admitted it is “a less technical term” than “gravel” (perhaps it is unenforceable because it is “vague”). DLS again quoted the Court’s reference to the Concise Oxford American Dictionary and, without expressly citing any other external sources, summed up: “The ordinary meaning of “fill” is fairly general: material, loose or compacted, that fills a space, esp. building or engineering work.”

It then concluded “fill” shall be defined as follows: “Uncontaminated, naturally occurring inorganic mineral soils imported to or exported from a site for the purposes of bringing the site to rough grade. “Fill” specifically excludes any organic soil or any processed manufactured materials such as bituminous concrete or mix.”

Whereas, DLS expanded the definition of “gravel” beyond its dictionary definition of a naturally occurring rounded stone to include crushed stone, DLS defined the more ambiguous term “fill” as excluding “manufactured materials.” Apparently, DLS continued on page 27

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“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

DECEMBER, 2012

Labor Issues continued from page 26 was neither concerned its “gravel” definition went beyond its dictionary definition or its definition of “fill” precluded “manufactured” material.

In sum, Kuehl did not await a decision by the Office of the Attorney General before proceeding and filing a private right of action. The case was certified as a class action. The case exposed the hazards of defending a class action suit which entitles a successful plaintiff and class to back pay, treble damages, and attorneys’ fees and has a three (3) year statute of limitations. The case brings the construction industry one step closer to a definition of the terms “gravel” and “fill,” but it opened a new issue – “waiting areas.”

Kuehl likely will not be the final word on these issues. Further, despite Kuehl commencing as a private right of action, the key issues, the definition of “gravel”, “fill” and “waiting areas” was referred to DLS and DLS ultimately authored the

definitions. While these definitions are subject to challenge because courts are deferential to DLS opinions, and there are very limited means and methods to appeal DLS decisions, a contractor or supplier who fails to follow the Kuehl decision is a contractor or supplier who is at risk. If a contractor or supplier seeks to vary its practices from Kuehl, they should discuss their options with their legal counsel or advisor. n

Crushed Stone & State Specified Dense Graded Base Manufacturer & Installer of Bituminous Concrete Products:

M.B.S. Construction Services/Paving Holden Trap Rock Co. 2077 N. Main Street (Route 122 A) Holden, MA 01520 Tel: 508-829-5353 Fax: 508-829-9346

Berlin Stone Co. 332 Sawyer Hill Rd. (off Rt. 62 & 495) Berlin, MA 01503 Tel: 978-838-9999 Fax: 978-838-9916

Supports New England’s Contractors Engineered to accommodate your excavation, our excavation support systems are your solution for: • Underground utility installations • Sewer installations • Lift station construction • Much more Mabey also carries a full line of trenchboxes, road plates, pipe plugs and slide rail products.

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Auctioneer Dan Flynn

Annual Christmas Party & Scholarship Auction Proves The Christmas Spirit Is Alive And Well!

The Christmas spirit is alive and well and resides in every UCANE member who participated, as a donor or a buyer, in UCANE’s 39th Annual Christmas Scholarship Auction. If by chance anyone was not in the Christmas spirit before arriving, that feeling couldn’t have lasted very long!

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s you entered the main ballroom at the Holiday Inn, Dedham, MA you could not help but become energized by the warm ambiance of the room and the huge display of auction items trimmed with Christmas lights and green and red garland. In the center of the display, a Rowe jukebox…one of the featured auction items…played Christmas songs.

From the festively decorated tables and Christmas trees, to the highly coveted outdoor inflatables… one a Santa in an RV and another Santa driving a crane…later became an auctioneer’s dream, as three or four buyers vigorously tried to outbid one another, all the while driving the prices higher and higher. In the end, the high bidder was loudly applauded, not so much for being the winning bid, but for the enjoyment and laughter provided to the crowd.

Once again this year, UCANE’s

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Christmas Party and Scholarship Auction was sponsored by Todd McDonald and Broadstone Advisors, LLC. Because of their generosity, and that of our members who donated products, sports tickets and cash to buy auction items, more than 200 members and their families were treated to an evening of non-stop fun and entertainment.

The evening started at 5:00 p.m. with a social hour where members and guests had the opportunity to relax, preview auction items and mingle with friends and business associates. Attendees were then served a sumptuous buffet dinner, during which time UCANE’s Executive Director Anne Klayman introduced members of our 2013 Board of Directors who were in attendance.

She then drew the names of 40 lucky raffle winners who received prizes ranging from Patriot’s sweatshirts to museum passes, dinner certificates and a child’s battery powered red BMW convertible, to name a few.

Anne officially kicked off the Auction by thanking everyone for supporting this event that helps fund our

“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

DECEMBER, 2012

ten $2,000 college scholarships that are awarded to deserving students, who are the children of our members and their employees. Since that evening was the drawing for the $550 million Power Ball Jackpot, Anne also announced that the winning bidder on each item would receive a Power Ball ticket! Needless to say, everyone was delighted with the idea that they could possibly become a multi-millionaire.

Jokingly, Dan Flynn of Daniel J. Flynn & Co., Quincy MA, our “Auctioneer Extraordinaire” for the past 13 years, informed the crowd that it would be appropriate for any Power Ball Jackpot winner to donate 10% of their prize to UCANE. (Unfortunately, to our knowledge, no winning bidder won any of the four $1 million prizes in Massachusetts.) This was just the beginning of Dan’s continuous banter throughout the evening as he poked good-natured fun at some of UCANE’s members and guests.

As is customary, there was something for everyone at UCANE’s Auction. This year we even had a cruise from Boston to Saint John, NB, Canada, and a five night Florida getaway. For the sports enthusiast, there were Red Sox and Patriots tickets and autographed memorabilia from incredible Boston superstars, including a Special Edition Tom Brady autographed football, and a “Rocky” boxing glove signed by Sylvester Stallone. For the music fans there was an autographed Taylor Swift guitar, a drumhead framed and autographed by all the members of Aerosmith, and Hotel California sheet music autographed by the band members of The Eagles.

In addition to construction items donated by UCANE members such as gravel and stone, and equipment rentals, there were overnights at The Charles Hotel, The Newton Marriott, The Seaport Hotel and The Essex Culinary Resort and Spa in Burlington Vermont. Some of the more unique items included dinner with former New England Patriot’s Triple Super Bowl winner Joe

DECEMBER, 2012

Andruzzi…a charter fishing trip for six lucky fishermen…a pair of Chapman lamps…designer home furnishings…a Soccer Clinic for ten children…a Personal Chef in your home to prepare three dinners, and an AMI Rowe CD Jukebox.

At one point during the evening, Dan stopped the auction to take not one, but two cell phone calls. After each call, Dan would restart the auction stating that “You’ll want to stay for the entire evening because I have a surprise guest coming.” Later in the evening, as the auction was winding down, Dan’s “special guest” arrived and he introduced comedian Steve Sweeney to the crowd. Steve began by asking Dan a number of times, “Who are these people and what am I doing here?” He then told several of his favorite jokes, which was the perfect ending to the evening.

The UCANE staff wishes to express their gratitude to our members and friends who so generously donated their products and services, and also cash to buy the more unique auction items. If you were able to join us, we are sure that you were entertained and had a great time. Not only was it a night dedicated to the worthy cause of our Scholarship Fund, it was a night filled with fun, friends, competitive bidding and laughs and the perfect way to kick off the Holiday Season. continued on page 30

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A world of thanks to the following UCANE members and friends who donated cash or provided items or services for our auction... and to those who purchased auction items.

ATS Equipment, Inc. Adler Tank Rentals Aggregate Industries-N.E. Region Albanese Bros., Inc. A. F. Amorello & Sons, Inc. A. Andreassi & Son, Inc. The Joe Andruzzi Foundation Arruda Trenchless Construction BakerCorp Barletta Heavy Division A. R. Belli, Inc. Benevento Companies The Blue Book BID2WIN Software, Inc. Biszko Contracting Corp.

Bob Bizak (Rogers & Gray Ins.) Broadstone Advisors, LLC Brookmeadow Country Club Boston Bruins Boston Philharmonic Brockton Rox C.J.P. & Sons Const. Co., Inc. P. Caliacco Corp.

Cambridge School of Culinary Arts

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Wayne Capolupo (SPS New England, Inc.) Pelino Gioioso Jay Cashman, Inc. Donna Grant Celco Const. Corp.

Grove Construction, Inc. Charles Hotel, Cambridge, MA L. Guerini Group, Inc. The Common Market, Quincy, MA HD Supply Waterworks Concrete Systems, Inc. I.W. Harding Const. Co., Inc. D & C Construction Co., Inc. A. H. Harris & Sons, Inc. Dagle Electrical Const., Corp.

HUB Int’l New England, LLC Dale Carnegie Institute Huntington Theater J. D’Amico, Inc. Hy-Line Cruises Darmody, Merlino & Co., LLP Iaria Bros., Inc. The Doering Equip. Co., Inc. Improv Asylum James J. Dowd & Sons Insurance P. J. Keating Company The Driscoll Agency P. T. Kelley, Inc. EJ P. A. Landers, Inc. Eastern States Ins. Agency, Inc. Lawrence-Lynch Corp.

Essex Resort & Spa, Burlington, VT Joel Lewin (Hinckley Allen Snyder, LLP) F1 Boston Lorusso Corporation FED. CORP. S. M. Lorusso & Sons, Inc. Ferguson Waterworks Lovin’ The Oven, Norwood, MA The Fireplace Restaurant, Brookline, MA Marois Bros., Inc. Food Tours of Boston McCourt Construction Co., Inc. Four Points By Sheraton Hotel McDevitt Trucks Gagliarducci Construction, Inc. J. F. McDonald Ins. Agency, Inc. Garrity Asphalt Reclaiming, Inc. Todd McDonald (Broadstone Advisors, LLC) Gencorp Insurance Group P. Gioioso & Sons, Inc.

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DECEMBER, 2012

McGladrey Milton CAT Mohegan Sun Mt. Sunapee, NH Newton Marriott Hotel Northeast Traffic Control Services, Inc. Daniel O’Connell’s Sons, Inc. Steve O’Duggan (Ritchie Bros. Auctioneers) Robert B. Our Co., Inc. Our Outhouses, Inc. Peabody Essex Museum E. H. Perkins Const. Co., Inc. Pertillar Soccer Podgurski Corp.

J. A. Polito & Sons Co., Inc. E. J. Prescott, Inc. H. R. Prescott, Inc. The Preservation Society, Newport, RI RJV Construction Corp.

RoadSafe Traffic Systems, Inc. SB General Contracting, Inc. Chuck Schaub (Hinckley Allen Snyder, LLP) Schmidt Equipment, Inc. Scituate Concrete Pipe Corp.

Scituate Precast Corp.

Seaport Hotel Shea Concrete Products Social Mavens Southern Redi-Mix Corporation SpeakEasy Stage Company, Boston, MA Stella Restaurant, Boston, MA The Stiles Company, Inc. Sylvan Learning Centers

DECEMBER, 2012

Systems Support Corp.

TD Garden Taylor Oil Company Albert J. Tonry & Co., Inc. Triumph Modular USI New England Umbro & Sons Construction Corp.

United Rentals Trench Safety Vellano Bros., Inc. Phil Vitali (Hanson Pipe & Precast, Inc.) Volvo Rents WHDH-TV Channel 7 W. Walsh Co., Inc. Walsh Contracting Corp.

Water Works Supply Corp.

WES Construction Corp.

R. H. White Construction Co., Inc. C. N. Wood Company, Inc. Woodco Machinery, Inc. World Diamond Source R. Zoppo Corp.

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UCANE’s Wish For Its Members Is Good Health And Good Cheer, A Prosperous 2013…And A Happy New Year!

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DECEMBER, 2012

Scholarship Applications Now Available

UCANE To Award Ten $2,000 Scholarships Who May Apply?

Any high school student who is the son or daughter of a UCANE member or an employee of a member who will be enrolling full time in an accredited four year academic institution for the year beginning in September 2013.

IMPORTANT: In the event the applicant receives a full four year scholarship from the college of his/her choice, the UCANE scholarship will be awarded to another applicant.

How Will The Application Be Judged?

This year there will be ten $2,000 scholarships awarded. Selections for the awards will be based upon: 1. scholastic achievement 2. interest and effort in preparing for your vocation 3. extra curricula activities at and away from school, including community service 4. personal recommendations 5. personal essay 6. financial need

How Will The Confidentiality Of The Application Be Protected?

Each applicant is assigned a number. When completed, page 1 of the application with the name of the applicant must be detached and sealed in the accompanying envelope. The applicants name must not appear on pages 2-4 of the application or attached transcripts and recommendations. After the winning applications have been selected, the envelopes with corresponding numbers will be opened to identify the award recipient.

What Must Accompany The Application?

1. A transcript of high school grades through the latest period prior to April 15th must accompany application.

2. A letter of recommendation from the principal or faculty advisor. The letter should include the number of students in the class and the standing of the applicant or equivalent must accompany application.

3. Additional recommendations from people familiar with the applicant’s ability and character, and from responsible members of the community, (optional but recommended).

4. Please indicate the UCANE company by which you or your parent is employed.

Note: The name of the applicant must be deleted entirely from pages 2 through 4 and all accompanying correspondence, and your application number must be inserted in its place.

When Must I Apply?

All applications must be submitted no later than April 15, 2013.

For an application, please send your written request to: Utility Contractors’ Association of New England, Inc. 300 Congress Street • Suite 101 • Quincy, MA 02169 Tel: 617.471.9955 • Fax: 617.471.8939 • Email: aklayman@ ucane.com DECEMBER, 2012

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“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

DECEMBER, 2012

Benefits & HR trategies Timothy P. Doherty Managing Director of Health & Welfare Benefits Pinnacle Financial Group

Health Care Reform Compliance Update: New Guidance on Counting Full-Time Employees Employers who start tracking and measuring full-time staff in January 2013 will be better prepared for the "pay or play" mandate in 2014.

The Internal Revenue Service recently released Notices 2012-58 and 2012-59, providing further guidance for employers to define “full-time employee” status in the context of the Patient Protection and Affordable Care Act (PPACA). The PPACA’s “pay or play” mandate requires large employers with 50 or more full-time employees to offer “quality” and “affordable” group health care or pay an excise tax. So the question is, “How do we define what is a full-time employee?” Notice 2012-58 offers updated parameters for this process so that employers with potentially 50 or more full-time employees can begin to measure and determine if they will be subject to the “pay or play” mandate and whether they will subsequently opt to “pay” or “play.”

Notice 2012-59 (the “Waiting Period Guidance”), clarifies the rule under the PPACA that limits waiting periods under group health plans to 90 days.

It is highly advisable that employers use 2013 to capture a full calendar-year view of their staffing trends to determine the best group health care coverage strategy for their business by the time the mandate goes into full effect at the end of 2014.

Background: Large employer shared responsibility – Code Section 4980H The “large employer shared responsibility provision” is the technical term for the “pay or play” mandate. An employer with 50 or more full-time employees must make an “assessable payment” if: • The employer does not provide the employee with minimum essential coverage.

• The coverage offered by the employer is unaffordable based on the employee’s household income (coverage expense would be more than 9.5% of employee’s household income).

• The employer’s coverage does not provide minimum value (i.e., does not cover at least 60% of the cost of benefits).

Failure to provide a full-time employee with applicable coverage could trigger a payment under Code

DECEMBER, 2012

Section 4980H of up to $2,000 per full-time employee per year for employers that offer no coverage or up to $3,000 per full-time employee per year for whom coverage is unaffordable or does not meet the minimum value rule.

Thus, the definition of full time employee is key in determining whether and, if so, to what extent, an employer may incur tax under Code Section 4980H beginning January 1, 2015.

Employers need to start measuring now to achieve the smartest strategy later.

Large employers potentially subject to the “payor-play” mandate should use 2013 to begin implementing some version of the anticipated measurement and stability periods of insurance coverage. continued on page 41

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DECEMBER, 2012

Benefits & HR Strategies continued from page 39 This period can be up to 12 months. Employers who initiate the process now will be giving themselves a full year of employee staffing data to review (known as a “look back” period) when planning their approach to the “pay or play” mandate.

The guidance is especially relevant to large employers of seasonal workers (such as retail and agricultural) and also employers with staff whose hours fluctuate between full-time and part-time (“variable hour employees"). The federal mandate defines fulltime employment as 30 hours a week (or 130 hours a month), but many employees work 20 hours one week and 45 hours the next, or may work 40 hours a week, but only for two months a year during the growing or holiday seasons. The notices address how this situation should be handled.

Notice 2012-58 defines three time periods — initial measurement periods, stability periods, and administrative periods for employers to begin sorting full-time employees from part-time with some definition.

• Initial Measurement. New employees who are not expected to work full-time (variable hour or seasonal employees) can be employed without health insurance for an “initial

DECEMBER, 2012

measurement period” of between 3 and 12 months, as determined by the employer, during which the employees hours are tracked.

• Stability. If at the end of that period it becomes clear that the employee has been working an average of 30 hours a week or more, the employer must offer health insurance to the employee for a “stability period” of at least 6 months or for the length of the initial measurement period, whichever is longer. In other words, if the initial measurement period was 3 months, and it is determined that the employee was full-time based on hours worked, the employer must offer health insurance for 6 months. If the measurement period was 12 months, the employer must offer 12 months of coverage.

Alternatively, if the employee worked on average less than 30 hours a week, the employer can treat the employee as a part-time employee for a subsequent stability period and not offer insurance.

• Administrative. The employer can take up to 90 days for an “administrative period” before the stability period begins during which the employer can determine eligibility and add continued on page 42

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41

Waiting Period Guidance...

The 90 Day Window

Benefits & HR Strategies continued from page 41 the employee to its health insurance program.

In no event, however, can the combined measurement period and administrative period extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.

Ongoing employees with variable hours can also be made subject to measurement periods and stability periods with the same requirements as new employees. If an ongoing employee is determined to be part-time during any measurement period, the employer can deny coverage to that employee without risking a penalty for the next stability period. If the employee is determined to be full-time during the measurement period, the employer must insure the employee for the following stability period or risk paying a tax penalty.

Variable-hour employees may be insured one year, not insured the next, depending on their hours of work during the prior “measurement period.” An employer can take up to 90 days following the measurement period for an administrative period before coverage begins. If an employee is already covered under a stability period, however, the employer must make the continuing eligibility determination before the stability period ends to avoid gaps in coverage.

Under notice 2012-59, new employees reasonably expected to work full-time cannot be required to wait more than 90 days to be enrolled in coverage offered by an employer. An employer may, however, impose a measurement period on variable-hour employees of up to 12 months, consistent with the scheme described in Notice 2012-58 (ie., if it turns out the employee worked “full-time” during the initial measurement period of 12 months, then the employee must be offered coverage for 12 months).

Where to Begin Accurately and successfully moving forward with compliance for this provision means beginning the initial measurement period in January 2013 and aligning the efforts of benefits, HR, payroll and vendors. Massachusetts employers, in particular, might be especially challenged right now as they strive to comply with existing state and now federal mandates.

If you’d like more personalized guidance regarding how this provision will impact your business and how to be ready, contact your benefits consultant. n

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Aggregate Industries is an environmentally responsible producer of high quality aggregate and construction materials in the United States. From the roads you drive on to the buildings you work in and the homes you live in, Aggregate Industries supports fundamental elements of everyday life.

Aggregate Industries leads the green building materials market in New England. A range of our products use warm mix asphalt technology, which consumes less energy, results in lower carbon emissions, and allows for increased recycling opportunities. We recycle more than 600K tons of asphalt and concrete each year. In addition, our portfolio includes green products that contribute to the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) certifications, including pervious concrete and asphalt.

Aggregate Industries has been a supplier of the building products and solutions market that the residents of New England have relied on for over 100 years. As part of the Holcim Group, Aggregate Industries views our commitment to Corporate Social Responsibility and Community as one of our core values. We believe that a responsible company takes care of the communities in which the company serves and supports the employees who work for it.

We are committed to sustainable development and the preservation of the resources we rely on for the products we produce. Aggregate Industries is recognized as an environmental leader in the industry for having voluntarily conformed to the International Standards Organization Environmental Management System, ISO 14001.

While our business will continue to grow, our commitments will remain the same: • Set the standard by which all companies in our industry are measured.

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“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

DECEMBER, 2012

Environmental Viewpoint Robin L. Main, Esq.

Hinckley Allen Snyder, LLP

The Value of Self-Disclosing and Remedying Environmental Violations Note: I would like to acknowledge the assistance of my colleague, Rhiannon A. Campbell, who helped write this month’s article. Rhiannon is an Associate in the Litigation Group at Hinckley Allen Snyder, LLP.

Failure to comply with environmental laws and regulations can be costly. However, in order to encourage compliance, the Massachusetts Department of Environmental Protection (“DEP”) has a policy in place that allows for significantly mitigated penalties for entities that self-report their environmental violations and remedy those violations in a timely manner.

T

he DEP Audit Policy contains nine conditions that must be satisfied in order to receive the benefits of the policy: 1. Systematic Discovery (discovered through either an environmental audit or compliance system that reflects the entities due diligence); 2. Voluntary Discovery (not discovered through a procedure required by statute, regulations, consent agreement or judicial or administrative order); 3. Prompt Disclosure (disclosure within 21 calendar days of discovery or in such time required by law if the law requires disclosure of that violation in less than 21 days); 4. Discovery and Disclosure Independent of Government or Third Party Plaintiff (discovered before a government agency likely would have learned of the violations either through its own investigation or through a third party); 5. Correction and Remediation (remediation of harm caused by the violation within 60 calendar days of the discovery); 6. Prevent Recurrence (entity agrees, in writing, to take steps to prevent recurrence); 7. No Repeat Higher Level Enforcement (the same or closely-related violation has not been included in a higher level enforcement action

DECEMBER, 2012

by DEP, the Massachusetts Attorney General or the Environmental Protection Agency (“EPA”) against the regulated entity within the past three years); 8. Other Violations Excluded (violations that result in significant actual harm or present a significant risk of harm to public health, safety or welfare or the environment, that violate the terms of any administrative or judicial order or consent agreement, or result from a failure to timely notify DEP of a release or threat of release of oil and/or hazardous materials may not receive the benefits of the policy); and 9. Cooperation (regulated entity must cooperate with DEP and provide DEP with the information necessary to determine applicability of the policy.).

If all nine conditions are met, where the initial response for a violation would be a Notice of Noncompliance (“NON”), DEP will not issue a NON or otherwise use the violations to establish a foundation for future enforcement. Further, if all conditions are met, the entity is eligible for complete mitigation of any administrative penalties that would normally be imposed. If all conditions but the first—systematic discovery—are met, the regulated entity is eligible for a 75% mitigation of any such administrative penalty. continued on page 46

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45

Environmental Viewpoint continued from page 45 However, in either instance, DEP may still recover the economic benefit that the regulated entity derived from its violation.

Furthermore, if all nine conditions are met, DEP will generally not recommend criminal prosecution to any prosecuting authority (although prosecutorial discretion ultimately rests with that authority) provided that there is no management practice or policy of concealing or condoning violations and no willful blindness to violations or conscious involvement in the violations after blindness on the part of high-legal corporate officials or managers. DEP may, however, recommend prosecution for the criminal acts of individuals.

EPA has a similar policy in place that largely mirrors the DEP program. However, given recent budget cuts the future of the EPA program is uncertain. EPA has opted to scale back its funding of the program and it is possible that the program will be repealed by year end. n

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DECEMBER, 2012

John E. Merchant, CPA

SPECIAL ISSUE

Cullen, Murphy & Co., P.C.

2012 TAX PLANNING ROUNDUP: • Back to the Brink • Planning Ahead for the 3.8% Surtax • Year-End Tax Planning for Investors • Year-End Tax Planning for IRAs • Year-End Estate Tax Planning • Year-End Tax Planning for Business Owners

T

Back to the Brink

wo years ago, many tax laws that were enacted in the early years of this century were about to expire.

Income tax rates were scheduled to rise; estate taxes would have more bite; and various other tax provisions would end.

In mid-December 2010, Congress acted to extend most of the expiring tax provisions for two years, through 2012.

Those two years are just about up as we enter the final months of 2012. The political climate in Washington may be even more contentious now than it was then, with presidential as well as congressional elections on the calendar. If Congress passes a tax law this year, enactment might not come until December…or such a law might not pass at all. Year-end tax planning is as difficult as it has ever been.

What will happen if we reach 2013 without any action on tax law? Here are some examples: • Income tax rates will rise across the board.

The top rate will increase from 35% to 39.6%.

• The top tax rate on long-term capital gains will go from 15% to 20%. Lower income taxpayers who now pay 0% on long-term gains will owe 10%. For assets held more than 5 years, the 20% rate is reduced to 18% (for assets with holding periods beginning after December 31, 2000), and the 10% rate is reduced

DECEMBER, 2012

to 8% (for all assets, regardless of when their holding period began).

• Similarly, the 15% and 0% tax rates on qualified dividends paid to investors will disappear.

Instead, investors will owe ordinary income tax on dividends at rates up to 39.6%.

• The federal estate tax exclusion will fall from $5.12 million in 2012 to $1 million in 2013. Estate assets over that threshold will be taxed at graduated rates up to 55%, versus the flat 35% rate now in effect.

• The lifetime gift tax exclusion also will drop from $5.12 million this year to $1 million next year.

• Many tax provisions, including the child tax credit and higher education tax credits, will become less generous.

Congressional action, followed by President Obama’s signature on the final bill, might prevent some or all of those tax changes from becoming reality. There are steps you can consider taking in late 2012 to lower your potential tax obligation now and in the future.

Meanwhile, some tax changes are scheduled to take effect in 2013 as a result of health care legislation passed in 2010 and recently left standing by the Supreme Court. Those changes might be overturned in the future, but for now it is prudent to assume they will be valid in 2013, so you should plan accordingly. continued on page 49

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Financial Management continued from page 47

Planning Ahead for the 3.8% Surtax

A

s explained in the November 2012 Financial Management, a 3.8% surtax on investment income takes effect in 2013 as a result of health care legislation.

This tax applies to taxpayers filing joint returns or surviving spouses with modified adjusted gross income (MAGI) over $250,000, married individuals filing separate returns with MAGI over $125,000, and all other individuals with MAGI over $200,000. For most people, MAGI is the same as your adjusted gross income, reported on the bottom of page 1 of your federal income tax return.

$250,000 threshold.

Example 1: John Smith is single, with MAGI of $210,000 in 2013. His net investment income is $25,000 that year. John’s MAGI is $10,000 over his $200,000 threshold and that excess $10,000 is smaller than his $25,000 of net investment income.

Thus, John owes the 3.8% surtax on $10,000, which equals an additional tax of $380.

Example 2: Bob and Betty Johnson are married with $600,000 of MAGI in 2013. Their net investment income that year is $320,000. The Johnsons’ MAGI ($600,000) is $350,000 over their threshold ($250,000), so their $320,000 in investment income is the smaller number. The Johnsons owe the 3.8% surtax on $320,000, which equals an additional tax of $12,160.

This 3.8% surtax, designed to help fund Medicare, will be applied to the smaller of two numbers. One number is your net investment income, after expenses; the other number is the amount by which your MAGI is over the $125,000, $200,000, or

Surtax Surprises Regardless of whether you have a large MAGI every year, you still might owe the surtax in specific continued on page 51

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Financial Management continued from page 49 situations. Such situations might include when you sell a house or start to take IRA distributions.

Example 3: Alice Brown is single and ordinarily has MAGI around $150,000, so she is not concerned about the surtax immediately. In the next few years, though, Alice starts to supplement her income with Social Security benefits. Alice takes required minimum distributions (RMDs) from her traditional IRA after she reaches age 701/2. Then, in the same year, Alice sells a vacation home she has held for many years. So, in addition to her ordinary MAGI of $150,000, Alice now has $25,000 of taxable Social Security benefits, $30,000 of RMDs, and a $50,000 capital gain on the sale of her vacation home. That extra $105,000 pushes Alice’s total MAGI to $255,000 that year, so she will owe the surtax. (If Alice had sold her principal residence, only the taxable portion of the gain would have been included in her MAGI).

vestment income is $90,000, counting the $50,000 gain from the vacation home, her $55,000 of excess MAGI would be the smaller number, subject to the 3.8% surtax, meaning the surtax would cost Alice $2,090.

Planning Pointers

If that’s how the surtax will work every year starting in 2013, what can you do by year-end 2012 to reduce its impact in the future? Essentially, there are two ways to trim possible exposure to the 3.8% surtax. One is to reduce the net investment income you’ll report in the coming years. The second tactic is to reduce future noninvestment income that would push up your MAGI and trigger the surtax.

On the investment side, see if you can shift taxable investment income to tax-exempt municipal bond interest that won’t count in your MAGI. Use the last few weeks of 2012 to consult with your investment advisor about possibly adjusting your portfolio in this manner. Municipal bonds and muni Note that Alice’s Social Security benefits and funds will be especially attractive if you’ll owe highher RMDs are not considered investment income. er ordinary income tax as well as the 3.8% surtax Even so, they count in her gross income and, on taxable investment income. thus, push her MAGI over the $200,000 threshold into surtax territory. In this example, Alice’s MAGI Taking capital losses by year-end can enable you to build up a bank of net capital losses that would be $55,000 over that threshold. If her net inwill offset future capital gains and enable you to avoid reporting highly taxed gains. You also might want to take capital gains in 2012, if that’s in your plans, Water Works Specialists before the 3.8% surtax and possibly higher tax rates take effect.

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Financial Management continued from page 51

Year-End Tax Planning for Investors

T

ax loss harvesting is usually a savvy year-end strategy for investors. This year, taking losses may be especially worthwhile.

When you sell a security at a loss, that capital loss offsets capital gains you’ve taken during the year in other transactions. Thus, you avoid or reduce paying tax on those gains. If you wind up with more capital losses than capital gains, you can deduct those losses on your tax return, up to $3,000 per year.

If your net capital losses top $3,000, you can carry them forward. Consequently, excess net capital losses from 2012 can be used in 2013 and future years to offset future capital gains. The ability to avoid tax on future gains will become more valuable, if the minimum tax on long-term gains rises from 15% to 20%, as now scheduled. High-income investors, who might owe as much as 23.8% on such gains, including the 3.8% Medicare surtax, may want to make a concerted effort to accumulate capital losses for use in future years.

Example 1: Dan Jones reviews his securities trades for 2012 late in the year. So far, he has net capi-

tal gains of $16,000. Some of those gains are longterm and will be taxed at 15%, whereas others are short-term gains, which will be taxed at his ordinary income tax rate. Altogether, Dan would owe over $2,500 in tax on those trades, if he takes no further action.

Dan reviews all of the investments he holds in his taxable accounts and discovers some of those holdings now sell for less than his purchase price. By selling those assets, Dan takes $40,000 worth of capital losses by year-end.

Those $40,000 of losses change Dan’s 2012 capital gain position from $16,000 in net capital gains to $24,000 in net capital losses. Dan can deduct $3,000 on his 2012 tax return. Assuming that Dan is in a 28% tax bracket, this deduction saves him $840 in tax: 28% times $3,000. Without taking year-end losses, Dan would have owed over $2,500 in tax on his 2012 trades, as previously mentioned. Thus, the immediate tax savings is more than $3,300.

If Dan has $24,000 in net capital losses by yearend 2012 and takes $3,000 tax deduction, he will carcontinued on page 55

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DECEMBER, 2012

Financial Management continued from page 53 ry forward the unused $21,000 in net capital losses.

In 2013 and future years, he will be able to take capital gains, and instead of perhaps paying 20% or 23.8% on long-term gains and as much as 43.4% on shortterm gains (the scheduled 39.6% top rate and 3.8% surtax), Dan can use the $21,000 of capital losses that were carried forward to offset $21,000 of capital gains and avoid paying taxes.

High-income seniors should realize that capital gains reported in 2012 might be even more taxing because the income could result in higher fees for Medicare Part B in 2014.

Watch Out For Wash Sales Although tax loss harvesting is tax-efficient, you shouldn’t let these moves disrupt your investment strategy. Use the sales proceeds to reinvest, if you don’t need the cash right away, and aim to wind up with a portfolio that’s in line with your goals as well as your risk tolerance.

There’s a catch, though. You shouldn’t reinvest immediately in the securities you sell as a loss. If you do, you won’t be able to claim the loss on your 2012 tax return. The so-called “wash sale” rules prevent this tactic.

Fortunately, there are several ways to avoid the wash sale rules and maintain a similar portfolio. For example, you can take a loss, wait for at least 30 days, and then repurchase the same asset you sold for a loss. The delay allows you to claim your capital loss.

Another approach is to sell an investment for a loss and then immediately buy something that’s similar but not identical. You might sell one bank stock fund at a loss and reinvest in another bank stock fund right away. With this method, you’ll have a capital loss, and you’ll also be in a position to profit if bank stocks move up after your sale.

Gauging Gains If taking capital losses by yearend makes sense in 2012, what about taking gains this year? Is it better to cash in long-term capital gains now, and pay 15% in tax, rather than take gains in the future when you might owe 20% or 23.8% in tax?

That depends. If you are planning to sell any appreciated assets soon, acting this year can pay off.

The 15% tax rate on long-term gains applies to securities, real estate; share in a private business, etc.

However, if you have no immediate plans to sell an asset, accelerating the sale also accelerates the tax bill. As of this writing, there is no certainty that capital gains tax rates will increase in 2013, and the 3.8% surtax will apply only to high- income taxpayers. If there is no pressing reason to sell an asset, you might want to wait until continued on page 56

DECEMBER, 2012

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55

Financial Management continued from page 55 late December, when the election results are in and the prospect of tax legislation in 2012 is clearer to decide whether to take gains this year.

Zeroing In That said, there are some situations in which you should consider a year-end sale at a gain. In 2012, at least, lower income taxpayers owe 0% tax on longterm capital gains and qualified investment dividends.

The 0% rate applies to single taxpayers and married individuals filing separate returns with taxable income up to $35,350 in 2012, and to married couples filing joint returns with taxable income up to $70,700.

If you plan to sell appreciated securities, consider giving the securities to your parents, if they are retired and have a relatively low income.

Example 2: Several years ago, Ed Martin invested $20,000 in a mutual fund that holds gold mining stocks.

Ed’s shares are now worth $35,000, and Ed believes that gold prices will retreat before moving up again.

Instead of selling shares himself, Ed gives them to his parents, who have taxable income of $50,000 in 2012. The senior Martins sell the shares in late 2012, taking the $15,000 long-term capital gain, which boosts their taxable income for the year to $65,000.

That’s still under $70,700, so the senior Martins will owe 0% tax on the trade.

Similar results may be possible by transferring assets to children or grandchildren. However, the socalled “kiddie tax” may limit the advantages of giving investments to minors or giving investments to full time students 23 or younger. You can avoid those limits by giving assets to lower income young adults who are finished with school or to students 24 and older.

In any case, gifts over $13,000 in 2012 probably will have gift tax consequences. Our office can explain those consequences to you, so you can decide if transferring assets to use the 0% tax rate this year is worthwhile. continued on page 57

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DECEMBER, 2012

Financial Management continued from page 56

G

Year-End Tax Planning for IRAs

enerally, year-end Roth IRA conversions are a smart move. That’s because all Roth IRA distributions will be tax free after 5 years and after age 591/2. For all Roth IRA conversions, the 5 year mark starts on January 1. Therefore, a year-end conversion may cut the wait to just over 4 years.

Example: Kim Parker, age 56, has $100,000 in a traditional IRA, which she converts to a Roth IRA in December 2012. For Kim, the 5 year clock starts on January 1, 2012. Therefore, Kim will be able to take any amount from her Roth IRA, tax free, on or after January 1, 2017—4 years and 1 month later.

This year, Kim may have extra reasons to convert her traditional IRA. On such conversions, individuals owe tax on all the pretax money moving into the Roth IRA. Assuming Kim only has pretax money in her IRA, she would report $100,000 of extra taxable income in 2012, as a result of the conversion.

Therefore, Kim might want to convert to a Roth

IRA in 2012, when income tax rates are relatively low.

Converting in the future could cause Kim to pay tax at higher rates and perhaps pay the 3.8% Medicare surtax as well.

On the other hand, Kim might decide not to convert her traditional IRA to a Roth IRA. In that case, after age 701/2, she will have to take required minimum distributions (RMDs) and pay tax at future rates, which could be much higher than those now in effect.

Roth IRA owners never have to take RMDs, so Kim can avoid those by converting her traditional IRA to a Roth IRA this year. continued on page 58

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Financial Management continued from page 57

Year-End Estate Tax Planning

T

he federal gift tax is one way to keep people from escaping the estate tax.

However, its understood that most people will want to make gifts during their lifetime, so the tax code makes some allowances.

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This year’s exclusion is $13,000, so you can give up to $13,000 to Dick, $13,000 to Jane, $13,000 to your old kindergarten teacher, and so on. You won’t owe gift tax, and you won’t deplete your estate tax exemption.

The annual exclusion is a use-it-or-lose-it provision. If you don’t make gifts to use your 2012 exclusions by December 31, you can’t carry the unused amounts into 2013. Therefore, if you have concerns about future estate tax, federal or state, you should consider using your exclusions this year.

Among married couples, both spouses can use their $13,000 annual exclusion. That applies even if property is owned jointly.

Example 1: George and Grace Henderson have a joint checking account. In 2012, the Henderson’s are entitled to use that account to give up to $26,000 to each of their children and grandchildren.

Lifetime Exclusion If you give more than $13,000 to any recipient during 2012, you will have to report the excess gifts on IRS Form 709, the gift tax return.

Example 2: Julia King gives $20,000 to each of her five grandchildren in 2012. In 2013, for the deadline for her income tax return, Julia also must report $100,000 of gifts on Form 709.

Of that $100,000, $65,000 will be covered by five $13,000 annual exclusions. Therefore, Julia reports only $35,000 of taxable gifts, in this example.

Will Julia owe gift tax? Probably not. In 2012, each taxpayer is permitted to make up to $5.12 million of such taxable gifts before paying any gift tax. That $5.12 million lifetime exclusion from the gift tax may not be available in the future—it’s scheduled to drop to $1 million next January. Therefore, wealthy individuals and couples might want to make large gifts in late 2012, removing large amounts of assets from their taxable estates without having to pay gift tax. continued on page 59

58

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“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK” DECEMBER, 2012 56 “BUY FROM THE ADVERTISERS IN CONSTRUCTIO

Financial Management continued from page 58

Year-End Tax Planning for Business Owners

W

hen it comes to year-end tax planning, business owners face the same uncertainties that confront all taxpayers. Will tax rates rise? Will the estate tax exemption be reduced?

Moreover, the same certainty also exists: high-income taxpayers will owe a 3.8% surtax on investment income, as explained on the previous pages of this issue.

Therefore, if you are planning on selling your company in the near future, you should consider closing the deal by December 31 this year, if possible. That would keep your income from the sale in 2012, when log-term capital gains are capped at 15% and the 3.8% surtax won’t apply.

Review Retirement Plans The end of the year is also an excellent time to review your company’s retirement plan. Some business owners find that they cannot make maximum contributions to their own company’s 401(K) plans. That’s because such plans usually are subject to tests that prevent highly compensated employees (such as the company’s owners) from contributing much more, in aggregate, than other employees contribute. Business owners who wish to contribute the maximum of $22,500 this year, for participants 50 or older, may be limited to a much smaller contribution.

Accelerate Equipment Purchases Section 179 of the tax code allows purchasers to “expense” certain amounts of business equipment, meaning that you can take a full deduction in the first year the equipment is used in the business. Typically, you must write off the cost of business equipment over several years, via depreciation. Therefore, the Section 179 election provides faster deduction and improves the cash flow of profitable companies.

DECEMBER, 2012

In 2012, companies can deduct up to $139,000 of equipment purchases. However, a phaseout takes effect, dollar for dollar, once 2012 purchases top $560,000.

Example 1: ABC Corp. buys $130,000 of new and used equipment in 2012. It can take $130,000 deduction, under Section 179.

Example 2: DEF Corp. buys $630,000 of new equipment in 2012. Therefore, DEF is into the phaseout range by $70,000 ($630,000 minus $560,000). The $139,000 maximum is reduced by that $70,000, so DEF can take a $69,000 tax deduction this year. Of its $630,000 in 2012 purchases, $561,000 ($630,000 minus $69,000 deduction) must be depreciated.

Another tax code provision, the so-called “bonus depreciation” allows companies to deduct 50% of most new equipment purchases placed in service in 2012. In Example 2, DEF can take a further first year bonus depreciation deduction of $280,500 (50% 0f $561,000) and use multi-year depreciation on the remaining $280,500.

Business owners should keep in mind that a company cannot claim a Section 179 deduction that would create or increase a reported business loss; however, any amount that cannot be deducted due to the limitation can be carried forward. On the other hand, 50% bonus depreciation deductions can create or increase a net operating loss (NOL) for the current year. Your company can carry back a 2012 NOL to 2011 and collect a refund of taxes already paid, if that was the case.

A Matter of Time Under current law, the Section 179 allowance will drop to $25,000 in 2013, and bonus depreciation will be sharply limited. Therefore, companies should try to accelerate planned equipment purchases into 2012. To qualify as 2012 purchase, the equipment must be placed in service (used in your business) before year end. Payment can be made in 2013, if that’s what you’ve arranged.

Conversely, equipment for which you’ve paid in 2012 won’t qualify for this year’s tax treatment if it’s first used in 2013.

Reprinted from CPA Client Bulletin. n

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59

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Advertisers’ Index ATS Equipment, Inc. ...........................................................22 Adler Tank Rentals ..............................................................20 Aggregate Industries-New England Region........................ 44 Aon Construction Services Group........................................55 Arruda Trenchless Construction..........................................13 Boro Sand & Stone Corp......................................................58 Dennis K. Burke, Inc............................................................52 Concrete Systems, Inc..........................................................14 Dagle Electrical Construction, Corp....................................34 Darmody, Merlino & Co., LLP............................................54 DeSanctis Insurance Agency, Inc. .......................................26 Dig Safe System, Inc............................................................54 The Driscoll Agency ............................................................16 EJ......................................................................................... 40 Eastern Insurance Group, LLC............................................10 Eastern States Insurance Agency, Inc..................................57 T. L. Edwards, Inc................................................................54 Equipment East, LLC...........................................................21 Ferguson Waterworks.......................................................... 46 Geod Consulting, Inc............................................................50 L. Guerini Group, Inc...........................................................15 HD Supply Waterworks..........................................................2 A. H. Harris & Sons, Inc. ....................................................52 Hinckley Allen Snyder, LLP..................................................6 John Hoadley & Sons, Inc....................................................51 P. A. Landers, Inc.................................................................48 Lawrence-Lynch Corp..........................................................53 Liddell Brothers Inc................................................................4 Lorusso Corp........................................................................56 Lorusso Heavy Equipment, LLC.........................................38 Mabey, Inc............................................................................27 Mass Broken Stone Company...............................................27 Milton CAT...........................................................................12 North East Shoring Equipment, LLC...................................41 Oldcastle Precast...................................................................48 Our Outhouses, Inc...............................................................25 Palmer Paving Corporation..................................................50 E. H. Perkins Construction Co., Inc.................................... 60 Podgurski Corp................................................................... 46 E. J. Prescott, Inc..............................................Ins. Front Cvr. Rain For Rent-New England.................................................36 Read Custom Soils ...............................................................58 Rodman Ford.................................................... Ins. Back Cvr. Schmidt Equipment, Inc.......................................... Back Cvr. The Scituate Companies...................................................... 24 Smith Print............................................................................50 Systems Support Corporation...............................................48 Ti-SALES, Inc. ....................................................................49 Albert J. Tonry & Co., Inc....................................................21 United Concrete Products, Inc. ............................................42 United Rentals Trench Safety...............................................18 C. N. Wood Co., Inc. ..............................................................8 Woodco Machinery, Inc.......................................................32

“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”

DECEMBER, 2012

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