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NRCA issues a statement about tax initiatives that promote small business growth

Statement of Chad Collins
On behalf of the National Roofing Contractors Association
House Committee on Small Business
"Tax Initiatives that Promote Small Business Growth"


May 5, 2010

Madame Chairwoman and distinguished members of the committee, thank you for the opportunity to testify today on behalf of the National Roofing Contractors Association (NRCA) to discuss tax initiatives that will promote the growth of small businesses across the nation. I am Chad Collins, president of Bone Dry Roofing Inc., Augusta, Georgia. I currently serve on the NRCA board of directors and the association's Government Relations Committee.

Established in 1886, NRCA is one of the nation's oldest trade associations and the voice of professional roofing contractors worldwide. It is an association of roofing, roof deck, and waterproofing contractors and industry-related associate members, including manufacturers, distributors, architects, consultants, engineers, government agencies and international members. NRCA has approximately 4,000 members from all 50 states and 54 countries. NRCA contractors typically are small businesses, with the average member employing 45 people in peak season and having sales of $4.5 million per year.

Unemployment in the Construction Industry

As you may know, unemployment in the construction industry is an alarming 24.9 percent, according to recent data from the Bureau of Labor Statistics, and there appears to be little relief in sight from this high level of joblessness in our industry. Although it was recently reported that the economy grew at an annual rate of 3.2 percent during the first quarter of 2010, the most recent data also showed that commercial construction dropped by 14 percent in this period and residential investment fell by 10.9 percent.

Clearly, the construction industry is one of the hardest hit sectors of the economy and continues to struggle.

Given the continued highly difficult economic conditions in the construction industry, NRCA urges Congress to take immediate action on targeted policy measures that will spur job growth within our industry. NRCA strongly supports the Green Roofing Energy Efficiency Tax Act (H.R. 426) and the Small Business Tax Relief and Job Growth Act of 2010 (H.R. 4841) and believes that enactment of these initiatives will help create jobs in construction and other industries, particularly among small businesses.

The Green Roofing Energy Efficiency Tax Act Will Create Jobs

The roofing industry is uniquely positioned to play an important role in creating high-quality jobs within small businesses. One of the ways this can be done is by enhancing the energy efficiency of our nation's buildings, which has the added benefits of conserving energy and helping to achieve important environmental objectives.

The "Green" Roofing Energy Efficiency Tax Act (GREETA) will immediately create jobs among roofing contractors while also helping to conserve energy and reduce carbon emissions. This common-sense investment in the emerging "green" building sector will result in more "boots on the roof" within days of enactment.

According to a study conducted by Ducker Worldwide, a leading industrial research firm, GREETA will produce the following benefits by accelerating the adoption of energy-efficient roofs within the commercial building sector:
  • Create 40,000 new jobs within the roofing industry
  • Add $1 billion of taxable annual revenue to the economy
  • Provide savings to small businesses of all types through a simpler and more equitable system of taxation and lower energy costs
  • Reduce U.S. energy consumption by 13.3 million kilowatt hours annually and cut carbon emissions by 20 million pounds per year
GREETA was introduced by Reps. Bill Pascrell (D-N.J.) and Wally Herger (R-Calif.) and has more than 36 bipartisan cosponsors. NRCA wishes to thank Chairwoman Nydia Velazquez and Rep. Dennis Moore for your continued support for GREETA. This legislation will facilitate greater levels of investment in green technologies and spur economic growth by amending section 168 of the Internal Revenue Code to provide a 20-year tax depreciation schedule for commercial roof systems that meet a designated energy-efficiency standard.

Passage of GREETA is necessary because between 1981 and 1993 the depreciation schedule for nonresidential property was increased from 15 years to 39 years. However, the current 39-year depreciation schedule is not a realistic measure of the average life span of a commercial roof. The Ducker Worldwide study determined the average life expectancy of a commercial roof to be about 17 years.

The large disparity between the current 39-year depreciation schedule and the average life span of a commercial roof serves as a major incentive for building owners to delay the replacement of failing roofs. This is slowing the adoption of more advanced energy-efficient and environmentally beneficial roofs because an owner who replaces a roof before 39 years have elapsed must continue to depreciate that roof for tax purposes even though it no longer exists. A Treasury Department Report to Congress on Depreciation Recovery Periods and Methods (July 2000) corroborated this problem by finding "… a 'cascading' effect, where several roofs are being depreciated at the same time, even though only one is physically present." Given this situation, many building owners choose to do only piecemeal repairs, most often with older technology rather than replace a failing roof in its entirety with new, more energy-efficient materials.

GREETA will rectify this situation by reducing the depreciation schedule from 39 to 20 years for commercial roofs that meet the energy efficiency requirements of the benchmark Standard 90.1 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers. This will accelerate the adoption of energy-efficient commercial roof systems by eliminating the disincentive in the tax code for building owners to install energy-efficient commercial roofs. As noted, this will have a positive effect on the economy and job creation by spurring greater demand for energy efficient roofs. Enactment of GREETA and will benefit small businesses of all types by mitigating the "cascading effect" of having to depreciate more than one roof in instances where a roof must be replaced before the 39-year depreciation schedule has been completed.

Given GREETA's unique combination of job creation and environmental benefits, this legislation enjoys strong support among both business groups and organized labor, including the United Union of Roofers, Waterproofers and Allied Workers and the Joint Roofing Industry Labor and Management Committee. GREETA also has the strong support of numerous U.S. building material manufacturers.

I want to emphasize that GREETA will create jobs not through a special tax incentive, but by the removal of an obstacle in the tax code which restricts economic growth and impedes the movement toward "green" buildings that can help achieve important environmental policy objectives.

Targeted GREETA Proposal

NRCA also is working with union and industry partners on a "targeted" version of GREETA that is designed to maximize job creation in the short term to help reduce the high rate of unemployment in the construction industry. This targeted proposal adopts key components of the Energy-Efficient Commercial Roofs Act of 2009 (H.R. 2615), legislation by Reps. John Larson (D-Conn.) and Dean Heller (R-Nev.), which NRCA strongly supports. H.R. 2615 would provide a 30 percent tax credit for energy efficient commercial roofs that meet a specified energy efficiency standard.

Recognizing the need to focus on immediate job creation, as well as current federal budgetary constraints, the targeted proposal is designed to maximize both job creation and energy efficiency in the short term. As such, it applies only to upgrades of existing roofs and does not apply to new construction and applies only to roofs upgraded in 2010 and 2011. To maximize the energy savings, the targeted proposal uses more stringent energy-efficiency standards contained in H.R. 2615. Thus, for a building owner to obtain 20-year depreciation as specified in GREETA, the newly installed roof system must meet minimum R-values (thermal resistance) that are significantly higher than those required under existing state and local building codes. Additionally, the provision would apply only to low-slope roofs where the insulation is installed entirely above deck (a category that covers approximately 62 percent of existing commercial building floor space).

NRCA believes this targeted proposal combining key components of H.R. 426 and H.R. 2615 is a highly credible short-term proposal for creating badly needed jobs in the construction industry while also significantly improving the energy efficiency of the nation's building stock.

The Small Business Tax Relief and Job Growth Act

Like many other small businesses, NRCA members have experienced great difficulty in obtaining access to credit in the current economic environment. The scarcity of credit is a key factor in preventing entrepreneurs from starting or expanding small enterprises, which have been the key drivers of job growth in our economy in recent decades.

Given this situation, NRCA wants to commend Chairwoman Velazquez for introducing the Small Business Tax Relief and Job Growth Act (H.R. 4841). This legislation will help create jobs by providing tax relief that is targeted at starting or growing a small business. H.R. 4841 amends the Internal Revenue Code to increase the tax deduction for business start-up expenditures, allows expensing in 2010 and 2011 of improvements to real property and structural improvements to buildings used in a trade or business, including roofs, and would reduce the net capital gains tax of C corporations with annual gross revenues of $15 million or less from the current 35 percent to 15 percent.

One targeted measure that can help create jobs is an expansion of Section 179 expensing that allows small businesses to quickly recover the cost of business purchases. The Internal Revenue Code currently allows businesses to take an immediate deduction for property used in their trades or businesses, but the only types of property that are eligible are purchases of tangible personal property. H.R. 4841 expands Section 179 to allow deductibility of structural improvements and improvements to real property, including improvements to roofs and other building components. Expanding the types of property that can be expensed under Section 179 promotes business productivity by lowering taxable income while also increasing purchasing power for small businesses.

H.R. 4841 would reduce the corporate capital gain rate for small corporations with less than $15 million in annual revenues from 35 percent to 15 percent. Many small businesses have appreciated assets, such as land and stock, which could be quickly sold to increase cash flow for the business in times of tight credit availability. A lower capital gains rate would greatly facilitate the sale of appreciated assets to generate the capital needed to create jobs. This provision is simple and straightforward, allowing small corporations to simply look at their own balance sheets and determine which appreciated assets to sell. This rate reduction creates increased cash flow for small businesses to use for operations, expansion, or to maintain or hire new employees.

Finally, under current law, a taxpayer may only deduct up to $5,000 of the startup costs incurred when attempting to form a new business venture. Newly formed businesses rely on this deduction to increase cash flow early in the life of the business, a time when many small businesses are most vulnerable. H.R. 4841 increases the amount of the first-year deduction from $5,000 to $20,000. This change would greatly assist small business start-ups in the construction industry and other sectors of the economy by providing greater levels of capital to be used to invest in the business. Expanding the availability of capital for new ventures will help entrepreneurs create new jobs as quickly as possible.

Conclusion

Again, NRCA urges Congress to address the alarming 25 percent unemployment rate in the construction industry by moving forward with targeted initiatives such as the Green Roofing Energy Efficiency Tax Act and Small Business Tax Relief and Job Growth Act. NRCA looks forward to working with the members of the committee in this regard.

Thank you for your consideration of NRCA's views on these matters.



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