Following is an analysis of the comments related to the improvement opportunities and types of benefits/services that the relocated businesses indicated during the interviews should be considered to ensure successful business relocations in the future. ORC’s recommendation related to each item is included after the analysis.
The Uniform Act limits reestablishment expenses to $10,000 per business displacement. As noted earlier in the report, thirteen (13) states have enacted legislation to increase the limit of this payment for displaced businesses in their particular state. The increased limits range from $12,000 to $100,000, with six (6) of the states having raised their reestablishment limit to either $50,000 or $60,000. In addition, three (3) states have enacted procedures to provide unlimited actual, reasonable, and necessary reestablishment payments to businesses, in accordance with stated guidelines. This results in a total of thirteen (13) states (26%) which do not cap the reestablishment expense payment at the Federal limit of $10,000.
This review indicated that 70% of those businesses that filed a claim for a reestablishment payment were able to claim the maximum payment available (this includes 75% of those with a $10,000 maximum and 65% with a maximum in excess of $10,000). Even in states such as Minnesota and Washington, where the maximum reestablishment payment is set at $50,000, the majority of the businesses were able to claim the maximum allowed. Based upon the files reviewed and the phone interviews, it was clear that virtually all businesses of any moderate size or complexity, could easily incur substantial reestablishment expenses, exceeding the current maximum limitations.
There is almost universal agreement from the displaced businesses and the SDOT relocation professionals that the current Federal limit of $10,000 is insufficient to compensate for the categories of costs that most businesses incur during the process of reestablishing their business at a replacement location. In many situations, the total $10,000 was used up simply in the calculation of increased rent at the new location over the first two years after displacement. Since most businesses generally stopped making additional claims once the dollar limit was reached for reestablishment benefits, we were unable to determine what a typical reestablishment claim might ultimately total. However, based on the interview information, along with the data from those states that have a reestablishment limit of $50,000 or $60,000, it is estimated that a significant number of displaced businesses could easily qualify for a reestablishment payment in excess of $60,000.
Consider raising the cap on reestablishment expenses, as the study finds that most business reestablishment costs far exceed the current $10,000 statutory maximum. Those states that have recently enacted legislation to increase this payment benefit have generally set this limit at around $50,000. An alternative would be to establish a set limit with a 100% reimbursement, and then provide for a 50% match up to a higher level.
Example: Raise the reimbursement cap to $25,000, but then have a 50% match for all additional eligible expenses between $25,000 and $175,000, for a maximum Agency payment of $100,000. A cost sharing formula encourages efficient use of the benefit and facilitates administrative review of payments.
Another recommendation is to provide inflation adjustments to any statutory limit established in the Uniform Act and the implementing regulations. The current reestablishment expense payment limit of $10,000 was established by legislation approved in 1987. If that amount was adjusted based solely on the Consumer Price Index, it would be approximately $20,000 in 2011 dollars. The United States Department of Labor website (http://www.bls.gov/cpi/) defines the Consumer Price Index (CPI) as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services." This website contains a CPI Inflation calculator tool that allows a user to compute the buying power of an amount of money in one year to another year (http://www.bls.gov/data/inflation_calculator.htm).
A business may elect a lump-sum fixed payment as an alternative to accepting the actual cost of their move. This payment is an amount between $1,000 and $20,000 for those displaced businesses that either believe that the fixed payment is a more simplified method of compensation or a sufficient amount of money without having to document details. This payment is based on the net earnings of the business and is not directly related to the intensity or complexity of the business move. It is an easy alternative for those businesses that have relatively simple moves to make , involving minor displacement of personal property.
Obviously, the higher the upper limit for this payment is adjusted, the greater the number of businesses that would be attracted to this alternative payment. Since the payment is based solely on the net earnings of the business, there are tax analysis implications which must be considered, such as the components and definition of net taxable income. The FHWA has traditionally given guidance that net earnings include actual reportable annual net profit, plus any compensation paid to the owner of the business (including the owner’s spouse and dependents).
When calculating net income, there is some room for discussion regarding whether net depreciation of capital assets should also be added into the definition of net income. Depreciation is not a cash expense to a business; it is an allowable deductible expense that reduces the taxable net income. In any particular tax year, the dollar amount of capital depreciation as shown on the business tax form represents more of a tax accounting tool, rather than a cash expense in that tax year. As an example, it is possible for two identical businesses, such as restaurants, to elect different depreciation methods for capital assets. The business owner who elects the straight-line depreciation method shows a higher net income than the one who elects an accelerated depreciation, and would be eligible for a higher fixed payment. Both business owners are using a legal process to compute taxable net income, however, the business owner claiming accelerated depreciation would be penalized by having a lower "profit" reflected on the tax information used to compute the fixed payment. For the purposes of determining "annual net earnings," it is reasonable to disregard the capital depreciation expense, which serves to reduce net earnings, in the net income calculation.
The Survey of Current Status of Business Relocation Payment Limits cited above indicates that five states have specifically raised their cap on the fixed payment through legislative means. Two states now have a limit of $60,000; two states have a limit of $75,000; and one state has a limit of $100,000. (A sixth state allows for the fixed payment to be paid in addition to the actual move cost). This research study included businesses in one state that currently has a $60,000 limit and one state that currently has a $75,000 limit.
While this is a popular method of compensation for qualifying businesses due to its ease of calculation, there are equality considerations that come into play as the payment’s upper limit is increased. For example, a small office type business (lawyer, insurance sales, travel agency, etc.) with high net earnings could possibly qualify for whatever upper limit is established, while incurring only a few thousand dollars in total moving expenses. Any intention to raise this payment should take into consideration the balance between ease and simplicity of payment versus potential excess payments for relatively uncomplicated moves.
During the relocation file reviews, 80 of the total 244 moving cost claims (33%) involved fixed payments. The research team interviewed 41 of these 80 fixed payment business owner/operators (51%). The relatively low percentage of interviews is due to the fact that a much higher percentage of those business owner/operators who took this payment did not actually reestablish their business at a new location. Since these owner/operators closed their businesses, it made it much more difficult to try to locate and contact them several years later. Virtually all of the owner/operators who chose the fixed payment, and were interviewed, were satisfied with the payment calculation. If they had not been satisfied that the fixed payment was providing adequate compensation, they could have opted for an actual cost reimbursement for their moving expenses.
Consider raising the maximum fixed payment limit, which currently stands at $20,000. Since this payment is not directly associated with the complexity of the actual moving costs, a balance must be reached between ease and simplicity of payment, and the potential for excess payments for relatively uncomplicated moves. The five states that have recently raised this limit have applied a maximum dollar figure from $60,000 to $100,000.
In addition, for purposes of the fixed payment, consider refining the definition of net income; possibly including the annual deduction for depreciation of capital assets as an element that can be added back to net income.
Another recommendation is to provide inflation adjustments to any statutory limit established in the Uniform Act and the implementing regulations. The current fixed payment limit of $20,000 was established by legislation approved in 1987. If that amount was adjusted based solely on the Consumer Price Index, it would be approximately $40,000 in 2011 dollars. This amount was determined using the CPI Inflation calculator at the U. S. Department of Labor website (http://www.bls.gov/data/inflation_calculator.htm).
Although the agency relocation agents generally provide adequate advisory services and guidance, most business owner/operators are best equipped to find their own replacement sites. This finding coincides with a similar finding in the previous 2002 National Business Study. Most of the businesses had positive feelings regarding the manner in which they were treated by agency representatives (63%), however, a minority (7.4%) alleged that the relocation agent did not provide information about payment options. Since approximately 39% of the business displacees that were eligible for search expenses did not claim this payment, there is some question about whether all displaced businesses were fully advised of their eligibility to claim search expenses. During the 2002 National Business Study many business owners also stated during the interviews that the SDOT relocation personnel did not emphasize that owners were able to claim the search expense payment. The similarity in interview comments in the 2002 study and the current study does not appear to be a simple coincidence and is noted as an ongoing item of concern.
Some business owners also indicated that relocation agents were unable to provide the required expertise to assist with the certain aspects of moving their businesses (for example, assisting with special permitting or obtaining zoning variances).
Emphasize and improve relocation assistance advisory services in explaining each of the benefits available to displaced businesses. Both the 2002 National Business Study and this research study indicated doubts regarding whether all businesses are aware of the availability of the search expense payment. In addition, the displacing agency should ensure that if the assigned relocation agents do not possess the specialized expertise necessary for the successful move of the business, the agents should advise the owners that professional services are available to assist with various aspects of the move.
The overall relocation process was viewed as too complex, or requiring too much documentation by at least six (6) of the business owners who were interviewed. Several business owners commented that it was difficult to provide the quantity of documentation the DOTs required to process relocation payments. One example of this practice is the process for documenting and claiming searching expenses. Most of the selected SDOTs require a log for time and cost spent searching, which varies in complexity. The time required to complete such a log may be several hours in itself. Some business owners felt it was not worth the time to obtain the amount of money involved.
Another example is the actual direct loss of tangible personal property payment, or the substitute personal property payment, which can be very effective for a business owner. However, the effort to find a value in place, or a salvage value, can be difficult for the owner, even if the agency provides assistance in locating these values. The business owners view it as too burdensome, and they often decline to pursue it.
Consider making the searching expense payment a lump sum payment that a business could claim without documenting time and actual costs incurred. For example, if a business owner claimed other actual move costs under §24.301, the owner would also be eligible for a searching expense payment of $2,500 (similar to a schedule payment that could be updated periodically). This method would provide relief to the business owner, and also reduce the administrative burden to the agency. This suggestion was made by a SDOT Relocation Chief and the DOT field personnel in this state also generally supported the lump sum payment method when it was discussed with them.
Alternately, a lump sum search fee could be paid at a lower level (say $2,500), with a higher limit (say, $5,000) requiring documentation. Since 71% of those businesses in this research study who claimed search expenses claimed the maximum amount of $2,500, consideration should be given to raising the cap on search expenses to a higher amount, say $5,000. Since SDOTs typically stop collecting data related to claim information when a business reaches the current $2,500 limit, it is difficult to document the actual searching expenses business owners incur and provide exact substantiation for the increase to $5,000. The business owners interviewed did provide the following information: two (2) business owners stated they spent "more than $2,500"; two said they spent "much more than $2,500"; one (1) owner said he spent $5,000, two (2) stated they spent $10,000, and one (1) indicated he spent over $11,000.
Another recommendation to simplify the relocation process is to provide a less complicated brochure. Business owners would find it easier to understand how the relocation program and the benefits apply to their business.
The research team also recommends permitting move cost estimates up to $10,000 by a qualified Agency staff person. This recommendation aligns with FHWA’s Every Day Counts (EDC) initiative, allowing SDOTs to save time and money in the preparation of relatively low cost move estimates. The SDOTs could save time by not having to coordinate the effort of obtaining moving estimates from commercial movers, which typically involves providing inventories, meeting the movers at the displacement site and reviewing the moving estimates for reasonableness. The agencies will also save money by not reimbursing commercial movers for the preparation of a move cost estimate. The recommended amount corresponds to the waiver valuation amount previously approved by FHWA as a threshold figure for serious concerns related to professional requirement needs. In this regard, having a knowledgeable DOT employee, rather than a professional mover, prepare the estimate would seem to conform to established guidelines.
Although the primary goal in conducting this research study was to evaluate how the caps on reimbursement limits impacted the ability of displaced business to successfully relocate and reestablish, there were several other interesting findings that were identified as result of the reviews. The research team arrived at a series of general observations based on the combination of the file reviews and the interviews;Virtually all of the interviewed businesses expressed satisfaction with the promptness of payment once the claims were filed.