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Research and Presentation by O.R. Colan Associates
The Federal Highway Administration (FHWA) contracted with O. R. Colan Associates (ORC) in 2010 to conduct a study of the actual costs businesses incur as a result of having to relocate for a public transportation project. The primary focus of this research effort was to determine the costs that a business incurs which would be reimbursable if reestablishment expense payments were not limited to the current Federal statutory maximum amount of $10,000. The Uniform Act provides this maximum amount to assist businesses in reestablishing at a replacement site. Since the actual, reasonable, and necessary costs of moving personal property are, generally, fully covered under the existing regulations, the main issue of concern in providing for adequate compensation to accommodate businesses involves items associated with reestablishing at a suitable and affordable replacement location. The FHWA has heard anecdotal evidence for many years that the payments were not adequate to reestablish a business. One purpose of this study was to determine if the $10,000 reestablishment payment is adequate to address these miscellaneous costs, which are necessary for the successful reestablishment of a typical business. The study also investigated the additional fixed payment (in-lieu-of payment) a business may be eligible to receive, if not for the statutory maximum payment of $20,000, and the $2,500 search expense payment, which is a regulatory limit. The program office will use this information to further assess the adequacy of the current benefit levels, and also document a need to update the benefit levels.
ORC conducted this research in several steps, which culminated in interviews with business owners who had been displaced by a State Department of Transportation for a federally-funded project. The primary purpose of the interviews was to identify the best practices and types of benefits and services that the relocated businesses indicated would best ensure successful business relocation.
ORC reviewed a total of 244 relocation files from eight (8) states (Delaware, Georgia, Indiana, Maryland, Minnesota, Texas, Virginia and Washington) between January and March, 2011. The following criteria were used for reviewing relocation files:
Forty-four (44) files were reviewed in Georgia, thirty-six (36) files in Indiana, thirty-nine (39) in Minnesota, thirty-two (32) in Texas and forty-one (41) in Washington. This was a representative sampling of the businesses displaced during the time period identified for review (January 1, 2006–December 31, 2010). In addition, six (6) files were reviewed in Delaware, fifteen (15) in Maryland, and thirty-one (31) in Virginia. This represents 100% of the businesses that moved in those states as a result of SDOT projects during the review period.
Following is a summary of the actual search expenses, reestablishment expenses and fixed payments (in-lieu-of payments) for all businesses reviewed.
In this stage of the research, three (3) interviewers from ORC conducted telephone interviews with business owners in the selected states, which represented businesses of different organization structures, sizes and types. ORC conducted these interviews during the months of February through June 2011 with businesses that were included in the relocation files previously reviewed.
The initial objective of the research study was to conduct a total of 175 interviews with business owners. ORC sent a letter to each of the 244 business owners prior to the initial attempt to conduct the telephone interview. This letter explained the purpose of the interview, provided a copy of the questionnaire form, and indicated that an ORC employee would be calling them soon. Approximately fifty (50) of these letters were returned as undeliverable. The interviewers made intensive efforts through internet search engines (Google Maps, online phone directory websites) to locate updated phone numbers, and/or business address listings when the contact information from the relocation file review was missing, or no longer valid. In some cases, these searches yielded no results. If the telephone number was valid and there was no answer, the interviewer left a message with a request to return the call or a message that the interviewer would call back later. In these situations the interviewer made 3-4 follow-up calls to attempt to interview the business owner.
Although we made repeated, and numerous, attempts to contact and interview these business owners, we were able to conduct 148 interviews with displaced business owners, rather than a total of 175 interviews, which was the initial objective of the research study. While we were unable to confirm the cause of this problem with the businesses, there are two likely reasons we encountered this difficulty: 1) the business had either gone out of business and could not be contacted; or 2) the business owner was unwilling to respond to our repeated requests for contact.
Following is a listing of the selected states and the number of businesses interviewed in each state.
|State||Number of Files Reviewed||Number of Interviews|
The business owners identified several areas in the relocation assistance program where changes could improve the business relocation process. Following is a summary of the best practices and types of benefits/services that should be considered to ensure successful business relocations in the future, as indicated by the relocated businesses during the interviews.
At least 20 of the 107 business owners interviewed who claimed actual move costs (18.7%) recommended an increase in the reestablishment expense payment; indicating that it was not sufficient or adequate to reestablish the business operation at the replacement site. It is difficult to determine the actual amount a business spent since most State DOTs cease collecting data once the limit is reached. Some business owners did provide information about additional expenses during the interviews, however, this information is based on their recollection and cannot be documented. Other business owners either declined to provide any information, or summarized the amount as being "a lot" or "much more than what the DOT paid."
Business owners commonly cited the following reasons for increasing reestablishment expenses:
9 of the 41 business owners interviewed (22%) who claimed a fixed payment recommended an increase in the amount of this payment. ORC reviewed the relocation files of 80 businesses that claimed a fixed payment. In those states with a fixed payment limited to the $20,000 statutory maximum payment (authorized under the Uniform Act), 78% had two-year average annual net earning equal to or greater than $20,000. In states that authorized a payment in excess of $20,000, 76% of the businesses reviewed had two-year average annual net earning equal to or greater than the maximum amount allowed.
After conducting the interviews with the business owners/operators, we surmised there was a wide variance in the quality of advisory services provided. Some business owners were complimentary toward those personnel handling their relocation. They indicated that the process worked well, that they were happy with the program, and they were very pleased with the payments and advisory services. Others reported not being informed of certain payment options, or had negative comments about the competency of the assigned agents (DOT employees and consultants). As an example, there were instances during the interviews where the business owners alleged that they were not informed about payment options (searching expenses or reestablishment expenses), or were directed toward a fixed payment rather than an actual cost move (at least 11 business owners made this comment during the interviews, which represents a 7.4% occurrence).
Some business owners also recommended that DOTs provide more information related to the projects, including schedules, which would assist them in planning for their move. Although the State DOTs did offer assistance, in some instances the displaced businesses believed the assistance would have been of little benefit because the agent did not adequately understand the business or its needs. The business owners felt that the assigned relocation agents did not possess the specialized expertise that could benefit certain kinds of businesses, which led to inadequate advisory services at times. For example, medical facilities and food handling operations may require special permitting at the replacement site; auto repair operations may need zoning variances; or franchise operators may have special needs to be able to maintain the franchise license. It also appeared that some relocation agents could have advised the owners that professional services were available to assist with various aspects of the move, which would have likely improved the overall advisory services provided to the business owners. Approximately 10% of the business owners (14 of 144) made comments related to a relocation agent's inadequate specialized expertise or an agent's failure to refer them to professional services.
At least 6 business owners commented that either the overall relocation process, or some aspect of it, was too complex. Their comments included statements such as, "make it simple–too picky about documentation," and "too much paperwork." Some of their recommendations for simplifying it include:
Make the brochure easier to understand
Require less documentation from the business owner to claim and process payments
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. Two of the businesses owners interviewed commented that the process was too cumbersome to justify claiming such a relatively small amount of money. Another owner stated that he incurred more expenses than he could claim, because he was unable to provide the required documentation. One State DOT Relocation Chief suggested 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. The DOT field personnel in this state also generally supported the lump sum payment method when it was discussed with them.
The research team also made the following recommendation for simplifying the relocation process:
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).
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).
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.
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 State DOT 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 State DOTs 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 State DOTs to save time and money in the preparation of relatively low cost move estimates. The State DOTs 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 State DOT employee, rather than a professional mover, prepare the estimate would seem to conform to established guidelines.