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Office of Planning, Environment, & Realty (HEP)

National Business Relocation Study

V. State Agency Survey Results

This study sought information from representatives of the Departments of Transportation in all of the 50 states and the Commonwealth of Puerto Rico. Responses were received from all of the agencies contacted.

Each agency was provided a two-page questionnaire that requested specific information, including the number of businesses displaced by the agency and the agency's ability to pay benefits greater than those authorized by 24 CFR 303 and 304. A number of questions were included to elicit opinions from the agency representatives about the benefits authorized in the aforementioned regulations.

During the last three years, the various state departments of transportation have displaced approximately 4,000 businesses. Of those, about twenty-five percent of the relocations were labeled by the agencies as being "complex" business relocations.

Of the fifty states and Puerto Rico, nine indicated that they are considering or are already paying benefits greater than those authorized by the federal regulations. In Delaware, for instance, state agencies can pay an additional $12,500 for reestablishment expenses. The state of Florida has a Business Damages Statute that often resolves payment of expenses not fully addressed by the federal regulations. Wisconsin has a Business Replacement Payment that allows relocation payments up to $50,000 for a business owner-occupant and $30,000 for a business tenant-occupant.

Other states, such as Washington, are allowed by state statute to pay greater amounts than those in the federal regulations, but have no laws specifying particular benefits for certain expenses. At least six states are considering legislation to increase business relocation benefits. For example, Illinois and Iowa are considering increasing the benefits for reestablishment expenses. By comparing information gathered in this study, it appears Louisiana may be the most "business friendly" state at this time, allowing reimbursement to the full extent of a business' loss. Although there appear to be some inconsistencies in the application of this state judicial application.

The agency representatives were asked if they believed the present payments authorized in 49 CFR 24.303 (moving) and 24.304 (reestablishment) are adequate. Nearly all respondents from the state agencies indicated the provisions for reimbursement of actual moving expenses are adequate, obviously because the statute places no monetary limit on this cost.

However, more than eighty percent of the states indicated that the reestablishment payment is not adequate. Respondents' comments included references to increasing reestablishment benefits based on the size of the business, or implementing a full replacement cost program consistent with residential relocation benefits.

The survey asked the state agencies if they had displaced any businesses that experienced difficulty in relocating and reestablishing due to code required modifications necessary at the relocation site. Responses varied; however, about seventy percent indicated they had encountered some facet of this problem. Of the businesses cited, operations like restaurants and bars had the most difficulty reestablishing due to health department and building code requirements. Most restaurants are unable to use their existing equipment at the relocation site because of new code requirements, and, therefore, are forced into considerable expense to upgrade their equipment to meet code at the new location.

The cost of compliance with requirements of the Americans with Disabilities Act (ADA) can be substantial. Businesses establishing in a new location are generally required to fully comply with ADA standards, even if the requirements had been deferred at the business' original location. A number of respondents noted that some businesses had utilized the entire $10,000 reestablishment allowance for modifications to achieve compliance with this Act, leaving no funds to assist them with other necessary reestablishment costs.

Other types of businesses with unique operational characteristics, such as salvage yards, automobile repair facilities, pawnshops, and billboards, encountered relocation problems because zoning laws effectively eliminated their ability to relocate. States are recognizing this problem and addressing it in a variety of ways. In Arizona, courts have gone as far as delaying an order of taking because a business was unable to locate a replacement site due to zoning restrictions. Connecticut responded, "The displacement of certain businesses may subject them to a bevy of regulatory changes." Based on the responses received from state agencies, this is a common situation in most jurisdictions.

Another interesting relocation situation cited in the responses involved a snowmobile dealer in New England who operated his business under a franchise agreement. The terms of his franchise agreement restricted him to a specific geographic area, precluding his relocating more than a few miles from his current location. This is another example of the range of challenges faced by agencies as they attempt to assist business relocation and reestablishment.

The questionnaire asked for the respondents' opinions about the amounts of payment authorized for search and reestablishment expenses, and if the respondent believed those amounts were inadequate, what amount did they feel would be more appropriate.

Approximately seventy percent said the current cap of $1,000 for search expenses is adequate. Those that believed otherwise gave a variety of suggested amounts for search expenses. The majority suggested the benefit be increased to $5,000 and a few responded that there be no cap.

An overwhelming majority of respondents felt the current cap of $10,000 for reestablishment expenses is inadequate. Amounts ranging from $15,000 to $100,000 for reestablishment expenses were suggested as more appropriate. Several respondents suggested no cap be placed on eligible reestablishment expenses but rather reimbursement for business reestablishment expenses be based on the actual, reasonable and necessary costs. The following chart illustrates the range of suggested amounts.

Pie Chart showing Suggested Reestablishment Expenses. 16% were Adequate. 25% were between $11,000 - $20,000. 28% were between $21,000 - $30,000. 20% were between $31,000 - $50,000. 4% were $51,000 or larger. 7% were No Cap.

The existing provisions for reestablishment payouts date back to the 1987 Surface Transportation bill. The actual detail of eligible benefits was first set out in the Federal Register of July 21, 1988. The final rule was adopted as of March 2, 1989. It provides for eleven specific categories of eligible reestablishment costs. These can be summarized as those costs necessary to modify the replacement location to meet the business' reasonable operation needs and to launch the business in its new location. Specific costs can include code-required modifications, other necessary modifications, increased operating costs, etc. The total reimbursement of all eligible reestablishment costs is capped in the legislation at $10,000 per business. The existing regulations prohibit reimbursement for expenditures made for items such as the purchase of assets (buildings, fixtures, etc.) loan interests, and inventory acquisition.

Respondents to the questionnaire were asked if they felt the eligible expenses for reestablishment should be expanded. Approximately fifty-six percent of the respondents said they felt the category of eligible reestablishment expenses should be expanded to include real-cost items not currently reimbursable under the federal regulations. Examples of non-reimbursable costs offered by the respondents include new construction costs as a reestablishment expense and the costs associated with capital improvements, such as construction of sidewalks, parking lots and driveways.

Other changes in the eligible reestablishment expense category suggested by the respondents include mortgage interest differential payments; converting increased operating cost, such as rent, to down payment assistance; offering last resort reestablishment payments; allowing businesses that are affected due to partial acquisitions to claim the payment; allowing redecoration of surfaces without considering if they are soiled and/or worn; addressing reestablishment costs of in-home businesses that do not contribute materially to the household and expanding the eligible timeframe to 42 months when determining increased operating costs.

While there were many suggestions for expanding this category of benefits, close to half of the respondents felt the current categories of eligible expenses are appropriate.

The questionnaire sent to state agencies asked if there were any other aspects of business relocation assistance, as provided for by the federal statute, they felt needed to be addressed. The responses were notably diverse. However, some issues surfaced as dominant when all the responses were compiled.

The most common suggestion from respondents was in regards to the fixed business payment (or in lieu of payment). A fixed payment is a lump sum disbursement generally determined by the profitability of the displaced business. It is offered in lieu of all other relocation costs at the option of the relocating business. A majority of respondents commented that the current fixed payment maximum of $20,000 is not adequate and should be raised to at least $30,000. Suggested amounts ranged from a minimum payment of $2,500 to a maximum of $50,000, compared to the current provision's limits at $1,000 as a minimum and $20,000 as a maximum payment.

A few respondents suggested a Replacement Business Payment be available to displaced businesses, similar to the Replacement Housing Payment that is available to residential displacees. This type of payment conceptually would provide some level of financial assistance for the purchase or lease of a replacement business location. This payment would be larger than the nominal benefit allowable within the reestablishment payment.

Another recurring response was the "business loss" or loss of income stream. Many respondents indicated a desire to see the regulations address business loss during the move period and provide the capacity to compensate for this loss. Most large businesses require a significant amount of time to move. Frequently the businesses' employees are not working during this time, unless they are assisting with the move. Additionally, certain businesses have contracts to fulfill and are unable to handle the "downtime" required when relocating. To these businesses, "business loss" and "contractual penalties" are real relocation expenses that are not eligible as a reimbursable reestablishment expense.

Respondents commented that often the reestablishment expenses do not cover increased rent, especially in rural areas where commercial rentals are not widely available. In this situation, some agencies suggested converting the increased operating costs to down payment assistance would be more helpful to the relocated business.

Several respondents mentioned in-home businesses and their eligibility for an in lieu of payment. One agency expressed an interest in limiting in-home businesses to actual moving costs and reestablishment expenses, precluding eligibility for a fixed payment. A number of agencies said residential landlords are currently being treated unfairly and should be eligible to claim an in lieu of payment.

Not only do regulatory matters affect the ability of an agency to carry out an effective relocation program but also certain agency practices and limitations restrain effective relocation. For instance, another agency requested that a list of Machinery and Equipment appraisers be maintained by FHWA and available on-line. The respondent felt that if there were an accessible list of these types of appraisers available, its agency would be able to assist businesses in claiming "Loss of Tangible Personal Property" more efficiently. Many respondents commented that there should be more flexibility in future regulations pertaining to displaced businesses. Several respondents subscribe to the "make-whole" theory for businesses, making them equal to residential displacees.

Overall, the state agencies' responses indicated businesses suffer considerable hardship when displaced and should be treated more fairly and equitably. The states use as a basis of comparison their experiences with residential relocation, where the funds provided essentially assure a financially feasible, available replacement property regardless of cost using the standard of "functionally equivalent and substantially the same." In the case of business displacement, all relocation costs except those for the actual move of the personal property are capped at $10,000.

Updated: 9/5/2014
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