Weekly Update: March 30, 2017

Iowa Mechanics Lien Vote No

Call to Action:  HF586 Mechanic’s Liens – Vote NO!

Ready to File a COW Notice as a Supplier or Self Performer?  If Not, Act Fast

With this change, all general contractors/direct contractors will have to post the commencement of work notice, notifying owners of subcontractor rights, within 10 days or otherwise their lien rights are forever lost. This makes no sense for those of you who supply direct or other contractors who self-perform with no subcontractors to file these notices.

This is on the fast track – voted unanimously yesterday by the Senate Commerce Committee to move forward.  It’s very substantive – it’s not a clean up the language sort of bill at all.  It changes everything.  We need for you to reach out and encourage them to vote no.

To find out which senators from your district that you need to reach out to, click here.  This is a new burden on you, far beyond the “it’s only five minutes online and $7” – the main argument in favor of it.  Here is more background – contact your respective senator and personalize it with any of the following information:

 

Explanation:

The Iowa House unanimously passed HF586 regarding “financial matters” on March 22 – section 4 of the bill covers mechanic’s liens.  We’re good with everything else in the bill, just none of Section 4, and would like to see Section 4 stricken in its entirety.  It reads:

Either a general contractor, or an owner-builder who has contracted or will contract with a subcontractor to provide labor or furnish material for the property , shall post a notice of commencement of work to the mechanics’ notice and lien registry internet site no later than ten days after the commencement of work on the property. A notice of commencement of work is effective only as to any labor, service, equipment, or material furnished to the property subsequent to the posting of the notice of commencement of work.

The proposed amendment contained within the bill appears to be a benign punctuation change involving a few additional commas. Presumably, this is why this bill quietly passed, 99-0, through the House File — either no one noticed this last sentence that was added in or the people who did notice the sentence believed it was a benign punctuation change to fix a typographical error.

However, the proposed amendment to Iowa Code section 572.13A, contained within the last sentence of HF586, is anything but benign.  Iowa’s updated Mechanic’s Lien Statute, effective 1/2013, was written to require only general contractors with subcontractors to file a Commencement of Work Notice on the MNLR registry, within 10 days of the start of the project, to preserve its lien rights on residential projects. This type of Commencement of Work Notice provides notice to a homeowner that subcontractors are being used on the project/property. Since the original owner notice concept was enacted within Iowa Code Chapter 572 decades ago, only general contractors with subcontractors were required to provide an owner notice. The aforementioned concept, which has been around for decades, could all change with the inclusion of two commas.

Under the statute, when a contractor self-performs all work without subcontractors, such contractor does not need to file a Commencement of Work Notice on the MNLR registry to preserve its lien rights and obviously the homeowner does not need to be notified about the use of subcontractors through the notice because there are none. Likewise, suppliers who supply directly to homeowners do not need to file a Commencement of Work Notice on the MNLR registry to preserve its lien rights. In HBA member and Davis Brown Construction Attorney Jodie McDougal’s 2015 trial in which she represented HBA member, Standard Water Control Systems (Standard Water Control Systems v. Jones), the trial court agreed that the Mechanic’s Lien statute only requires general contractors with subcontractors to file a Commencement of Work Notice (within 10 days of the start of the project) to preserve its lien rights. In 2016, the Iowa Court of Appeals confirmed the trial court decision in my Standard Water case and confirmed the above-noted principles. Thereafter, the Iowa Supreme Court opted not to hear the case when the homeowners tried to appeal for a second time, presumably because the Iowa Supreme Court agreed with the precedential Iowa Court of Appeals decision.

The bill, if passed, would require all Iowa contractors/suppliers to file this Commencement of Work Notice — a notice which notifies homeowners of subcontractors on the project — even for contractors who self-perform all work and suppliers who supply directly to the homeowner and thus have no subcontractors. That is, this notice of the use of subcontractors would be required even in situations where no subcontractors exist on a project. It makes no sense. This attempted change in the lien law is for the sole benefit of the financial-related industry (i.e., lenders, as well Iowa Title Guaranty/closing companies). There is no additional benefit to homeowners, and the benefit is purely to the lenders and title companies. Such benefit is at the expense of the hundreds of Iowa contractors who self-perform work and Iowa direct suppliers. Further, the bill is directly at odds with the intent and purpose of the Mechanic’s Lien Law set forth in Iowa Code Chapter 572 and is at odds with the decades-old principle regarding owner notice on residential projects.

Statute of Repose Applicability

Here are some notes on what the change to Iowa’s Statute of Repose mean to you – from HBAI member and Davis Brown Construction Attorney Jodie McDougal.

The new 8/10 year statute of repose law, contained within SF413, will take effect on July 1, 2017. The law has an express provision regarding applicability (which trumps the general rules regarding applicability of new laws).  First, there is no retroactive effect for the new statute of repose. Second, in terms of pending projects and general applicability, the law expressly provides as follows:

Sec. 2. APPLICABILITY. This Act does not apply to an improvement to real property in existence prior to the effective date of this Act or to an improvement to real property, whether construction has begun or not, that is the subject of a binding agreement as of the effective date of this Act.

Thus, per those express terms of the new law, if the construction project has not begun as of July 1, 2017 and if the construction agreement has not yet been entered into as of July 1, 2017, then the new, shorter statute of repose would apply to that project. Said slightly differently, the new, shorter statute of repose does not apply to (1) any construction project or other improvement to real property that is in existence prior to July 1, 2017 or (2) any construction project or other improvement to real property, whether construction has begun or not, that is the “subject of a binding agreement” as of July 1, 2017. Those projects still fall under the old, 15-year statute of repose.

Also, on certain forthcoming projects some contractors are only entering into letters of understanding and will not be signing the actual construction agreement until July 1st, as a way to have the construction project fall under the new, shorter statute of repose. This is a good course of action assuming the actual construction will not begin until July 1st. In other words, if parties start construction on a new project under only a letter of understanding and then sign the actual construction contract on July 1st, the old, 15-year statute.

Legislative Committee Report for March 24

HF 518 – Workers Comp – It passed the House 55 to 38, with 7 absent or not voting.  It now heads to the Senate as SF435 and we have registered in favor of this bill.  On HF518 and after the amendments were added it will:

  • Intoxication Defense – Puts the burden on the employee who tests positive
  • No Private Cause of Action – Makes clear that employee cannot sue employer for work-related injury outside of work comp statute
  • Date of Injury – Defines date of injury as the date that employee knew or should have known that an injury was work related
  • Suitable Work – Spells out in law as to what should be considered “suitable work”, rather than leaving to court interpretation
  • Permanent Disabilities – Changes the commencement date for permanent disability benefits to the date the employee reaches maximal medical improvement.
  • Shoulder Scheduled Member – Puts shoulder on the list of scheduled member injuries
  • Body as a Whole Injuries – Provides that when an injured employee comes back to work, the employee is compensated for functional loss and not a speculative industrial disability award.
  • Functional Impairment – Clarifies that scheduled member injuries should be compensated pursuant to functional impairment under AMA Guidelines
  • Double Recover prohibited for permanent partial disability benefits and permanent total disability benefits
  • Permanent Total Disability – providing that an employee cannot be adjudicated to be permanently and totally disabled when they remain productively working
  • Credit for Overpayment – In the event of overpayment, employer can take deduct from future benefits for the amount
  • Successive Disabilities – Provides that employers are not liable for pre-existing disabilities, and are only liable for injuries incurred under current job
  • Examination of Injured Employees – If an employee refuses to attend doctor’s appointments, then future benefits could be forfeited
  • Commutations – Changes would provide that both parties must consent to full or partial commutation of weekly indemnity benefits
  • Allowing Commutations with Open Medical
  • Jurisdiction – Restricts those who can claim Iowa benefits to those who actually work in Iowa –
  • Attorney Fees – Provides that an attorney can only take a fee on benefits they secure for injured worker

SF 438 – Project Labor Agreements passed the Senate last week and then was passed by a House subcommittee, which will allow the bill now to be heard by the House Labor Committee.  Representatives Klein (R-Keota) and Highfill (R-Johnston) supported the bill, while Rep. Kirsten Running-Marquardt (D-Cedar Rapids) opposed the bill.

The bill prohibits a public owner from entering into a government mandated project labor agreement (PLA) and it prohibits a public owner from creating any sort of ordinance or rule that would require an interested bidder, as a condition of bidding, to submit a questionnaire that would divulge proprietary and / or confidential information. (For)

Shortfall on Revenues

You’ve probably seen this in the news, but the state’s panel charged with forecasting tax revenue conducted their spring meeting and announced results that lowered Iowa’s expected revenue growth.  The Revenue Estimating Conference reduced the level of state revenue expected to be generated in the current fiscal year (FY 2017) to $7.106 billion.  This is a reduction of $106 million from the panel’s last forecast in December, when they projected General Fund revenue to be $7.2119 billion.  The percent of revenue growth when compared to FY 2016 will be 2.7 percent.  Also, because the revenue figure is below the current expenditure number for FY 2017, the state will have to find $131.1 million for the budget to balance at the end of FY 2017.  In all likelihood, the shortfall will be covered by the state’s rainy day fund to avoid further cuts into state budgets prior to the end of the current fiscal year (June 30, 2017).

For FY 2018, the committee projected that the state will collect $7.3645 billion during the upcoming year, a figure equating to 3.6 percent growth.  The March number is $191.8 million lower than the forecast developed in December 2016, which served as the basis in the development of Governor Branstad’s FY18 budget recommendation.

HF533Unemployment Benefits – Disqualification from eligibility for unemployment benefits. – Passed the House on March 20.

HF603Eminent Domain – Last week we discussed HSB184 and decided to monitor it.  It has changed to HF603 now.  HF603 relates to eminent domain and condemnation, including the authority of acquiring agencies to use eminent domain, the procedures required for the use of eminent domain, and compensation paid to certain property owners

HSB190First Time Homebuyer – We have taken a favorable position on SF425 and HSB190.

4th Annual Doug Mayo Memorial Golf Tourney Registration Nearly Sold Out

We are within a few golfers of being sold out, so make plans to join us for the 4th Annual Doug Mayo Memorial Golf Tournament on Friday June 30th, 2017. Click here to register.  We still are in need of hole sponsors.

Weekly Update: March 23, 2017


   This was the scene last Tuesday as HF3 sponsor Representative Koester (District 38, Polk County) put the final analysis on why this will be a good change.  He can be seen standing in the front row in the dark suit.  It was pretty much a party line vote.  Any kind of tort reform is hard to change with a strong Bar Association, but the pro-business climate prevailed.  Thanks to everyone who helped make it happen.

Statute of Repose on to Governor’s Desk!

After many years of heartache and partisan obstructionism, Iowa’s Statute of Repose will be reduced from 15 years to eight years for commercial and ten years for residential work.  It passed the Senate on March 8 and the House this past Tuesday, March 21.  This is a huge win for you as a member of this great federation.  Thanks to everyone who contacted their elected officials to help make the change possible.

Legislative Report March 17, 2017

The HBAI Legislative Committee met March 17 and discussed the following:

HF503Prevailing Wage – An Act requiring the payment of local prevailing wage rates to persons working on public improvements for public bodies, providing remedies and penalties, and including effective date provisions.  Explanation – This bill is 31 pages long, so if it concerns you please study it.  The bill requires a contractor to pay workers the same hourly wage plus fringe benefits for a public improvement costing more than $25,000 as prevails in the locality of the public improvement. The bill allows the per-hour wage rate to be based on what is normally paid in the area by contractors for similar projects, and to be adjusted on a yearly basis by the department of workforce development.  (Against)

HF586Mechanic’s Liens, Iowa Finance Authority Rent Subsidy, Shelter Assistance – This bill concerns the Iowa finance authority and mechanic’s liens.  Code section 16.26, concerning bonds and notes issued by the Iowa finance authority, is amended. The bill strikes the requirement that a copy of each pledge agreement relating to bonds and notes shall be filed with the secretary of state to be valid and effective. The bill provides that a pledge made in respect of bonds or notes shall be valid and binding from the time the pledge is made, and that the resolution, trust agreement, or any other instrument by which a pledge is created does not need to be recorded or filed to be valid, binding, or effective against the parties.  Code section 16.41, concerning the shelter assistance fund, is amended to eliminate the requirement that the authority award grants from the fund annually.

New Code section 16.55 requires the Iowa finance authority to establish and administer a home and community-based services rent subsidy program. The program is to provide rent subsidies to persons who are approved participants under a home and community-based services Medicaid waiver and to individuals who are approved participants in the federal money follows the person grant program under the medical assistance program.  Code section 572.13A, concerning posting a notice of commencement of work to the mechanics’ notice and lien registry internet site, is amended. The bill provides that the statutory provision that limits who has to post this notice to one who has contracted or will contract with a subcontractor to provide labor or furnish material for the property applies to an owner-builder but not to a general contractor.

The change looks pretty benign, but when you read the explanation it’s clear that they are making a change to require all contractors (with or without subs) to register on the MNLR in order to have a mechanic’s lien.  The law prior to the database, and after its creation stayed consistent in only requiring those who have subcontractors on the project to register.  This change would affect those contractors who are a one-person operation.  For example, if homeowner hires contractor to remodel her basement, then homeowner doesn’t pay, current law allows the contractor to file a lien without posting notice to the MNLR.  HF 586 would require that contractor to file a commencement notice in order to have a valid lien.  The contractor could still sue under breach of contract, but would no longer have a remedy under chapter 572.

Contractors who do small jobs are the ones least likely to file liens, and posting a notice of commencement for every project was a new burden most small operations were concerned about.  (Undecided)

HF592Homeownership Development Tax Credit – This bill creates a homeownership development tax credit that will be administered by the economic development authority (EDA) and that will provide tax credits to taxpayers who make charitable contributions to eligible housing developers or eligible rural housing developers in this state.  An “eligible housing developer” is defined in the bill to include an Iowa nonprofit, tax-exempt organization that has been developing single-family housing for at least three years in this state to be sold to low-income households, as defined in the bill, that includes the development of such housing in this state for low-income households as a purpose in its bylaws or other organizational documents, and that agrees to provide EDA with certain information in order to properly verify charitable contributions. An “eligible housing developer” also includes an Iowa nonprofit, tax-exempt organization whose purpose is to support an organization described above and who redistributes any charitable contributions received on behalf of that eligible housing developer to the developer.  An “eligible rural housing developer” is defined in the bill to include an Iowa nonprofit, tax-exempt organization that meets the requirements of an eligible housing developer described above but that additionally has conducted for the last three years at least 51 percent of its housing development activities in Iowa counties with a population of fewer than 50,000 as determined by the most recent federal decennial census.  (Undecided)

HSB184Eminent Domain and Condemnation – This bill relates to the authority of acquiring agencies to use eminent domain and the procedures and compensation required for the use of eminent domain.  Division I of the bill establishes a definition of “merchant line” for purposes of Code chapters 6A and 6B that is the same as defined in Code section 478.6A(1). The bill also adds merchant lines to the definition of “private development purposes”. Code section 6A.21 provides that the authority to condemn property for a public use, public purpose, or public improvement does not include the authority to condemn agricultural land for private development purposes unless the owner of the agricultural land consents to the condemnation.  The bill also specifies under Code section 6A.21(2) that the limitation on the definition of public use, public purpose, or public improvement does apply to companies under the jurisdiction of the Iowa utilities board or to any other utility conferred the right by statute to condemn private property to the extent such purpose includes construction of merchant lines.  Division I of the bill takes effect upon enactment and applies to projects or condemnation proceedings pending or commenced on or after the effective date of division I of the bill.  Division II of the bill provides that for condemnation of property located in a county with a population of greater than 9,250 but less than 9,300, according to the 2010 federal pursuant to Code chapter 479B, an application for a permit involving the taking of property under eminent domain will not be granted until the applicant obtains at least 75 percent of the land area needed for the project through voluntary easements. If 75 percent of the land area needed has not been obtained through voluntary easements within two years of filing the application, the board must reject the application.  Division III of the bill takes effect upon enactment and is applicable to applications for permits filed but not yet acted upon on the effective date of division III of the bill and to applications for permits filed on or after the effective date of division III of the bill.  Division IV of the bill relates to the acquisition of real property by governmental entities by modifying criteria for dispossessing owners of property and authorizing payments to certain displaced persons operating a business or a farm operation.  The bill amends Code section 6B.26 by adding business and farm operation to the list of types of property from which a landowner shall not be dispossessed under condemnation proceedings until the damages for the property have been finally determined and paid.  (Monitor)

 

SF488Workforce Housing Tax Incentives (SUCCESSOR TO SSB 1035; COMPANION TO HF 439 BY COMMITTEE ON ECONOMIC GROWTH) – An act related to the workforce housing tax incentives program by increasing the maximum dollar amount that may be allocated to the program, by requiring that a certain dollar value of tax credits be allocated to housing projects in small cities, and by increasing the percentage for computing tax credits for such housing projects.  The bill raises the annual allowable tax credits allocation under the program from $20 million to $30 million, but maintains the economic development authority’s (authority) $170 million aggregate tax credit limit. The bill requires the authority to allocate at least $10 million in tax credits to housing projects in small cities and to administer such reserved allocations separately. If the authority does not reach the $10 million for such projects in a fiscal year, the bill provides that the authority may issue tax incentives from the reserved allocation to registered housing projects that are not located in small cities. Under the bill, a small city includes any city or township not located in one of the 11 most populous counties in the state, as determined by the most recent federal decennial census. Under the bill, a small city that is located in more than one county is considered to be located in the county having the greatest taxable base within the small city.  The bill provides that a housing project in a small city that results in two or more new single-family dwelling units at a greenfield site, as defined in the bill, may receive tax incentives under the program, equaling up to 20 percent of the qualifying new investment.  (Monitor)

SF438Project Labor Agreements – IOWA CONSTRUCTION BIDDING PROCEDURES ACT. This bill prohibits a governmental entity from requiring a potential bidder on a public improvement to provide any information which the potential bidder may deem to be confidential or proprietary as a requirement for being deemed a responsive, responsible bidder. This provision shall not be construed to prohibit a governmental entity from obtaining information from the lowest responsive bidder to determine the bidder’s responsibility relating to the bidder’s experience, number of employees, and ability to finance the cost of the public improvement.

A PLA is a pre-hiring collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for specific construction projects.  These mandates reduce competition, in part because eighty-five percent of the construction workforce is non-union.  The result is that fewer contractors bid for those projects.  The lack of competition drives up the costs of these projects for taxpayers.  A recent study found that PLA projects added an estimated $27 per square foot to the bid cost of construction for school projects, representing an almost 20% increase in costs over the average non-PLA project.

SF438 addresses the growing prevalence of PLA mandates.  It provides that government organizations shall neither prohibit nor require a PLA for public construction projects.  The bill does not stop a government organization from choosing a contractor’s bid that includes a PLA when doing so is in the best interest of taxpayers.  (Passed the Senate, now to the House)

Mark Your Calendar for NAHB Leg Con

Builders looking to send a message to Congress that it needs to take action to keep housing and the economy moving forward should mark their calendar now for the most important grassroots event of the year – the 2017 NAHB Legislative Conference.  The conference is on Wednesday, June 14 and is a day-long event that coincides with the NAHB Midyear Board of Directors Meeting in Washington, D.C.

Attending this year’s Legislative Conference will give NAHB members an unparalleled opportunity to lobby members of Congress to protect their business and industry, establish lasting relationships with their elected federal officials, do their part to ensure that NAHB’s issues are heard by Washington policymakers and galvanize a united front on Capitol Hill.

If you’re interested in attending, send an email to HBAI Executive Officer Jay Iverson and he can help you with the plans.  Registration opens on April 1 and you can find out more by clicking here.

Young Construction Workers Mean More Monitoring, Longer Projects

Employment in the residential construction industry reached 2.68 million in January of this year.  Although this is still well short of the 3.45 million at the peak of the boom in 2006, it nevertheless represents an increase of more than 700,000 jobs since the employment trough of the Great Recession in 2011.

This raises some questions. Are a lot of the added employees older workers who were forced out of the industry during the downturn and are now returning, or are they mostly younger workers entering the industry for the first time?  And, if they are younger workers, what effects are they having in the industry?  Are builders making any adjustments in their businesses to accommodate them?

NAHB investigated this with two special questions added to the February survey for the NAHB/Wells Fargo Housing Market Index. A total of 298 single-family builders responded to these questions, the first of which simply asked if builders noticed any tendency for older workers to be replaced by younger, less experienced ones over the past 12 months.  Sixty-three percent said yes, either to a minor extent (43 percent) or major extent (20 percent).

Builders who said yes to a major or minor extent were then asked about effects on their business. The most common responses were that the younger workers required more monitoring in order to be sure the quality of construction was maintained (70 percent) and that there was a loss of efficiency, so that construction projects were taking longer to complete (61 percent).   Relatively few said that the inflow of less experienced workers was constraining hourly wage rates.

$6 Billion Cut from HUD

President Trump unveiled his fiscal 2018 budget plan today that proposes sharp increases to defense spending along with corresponding cuts to scores of non-defense discretionary programs.  Notably, the administration puts HUD’s funding at $40.7 billion, down $6.2 billion or 13.2% from the $46.9 billion in 2017.

It is important to note that this is the first step in the budget process. The president’s budget is meant to serve as a marker, but it is up to the Congress to write and submit a federal budget. Lawmakers are expected to take several months to go through the appropriations process, and the final budget approved by Congress is likely to be significantly different than the White House draft.

Nevertheless, the administration’s budget will be debated by lawmakers. The White House budget would eliminate the Community Development Block Grant (CDBG) program, which provides communities with resources to address a wide range of urban renewal projects. The CDBG program received $3 billion in funding for 2017.

The budget would also eliminate the HOME Investment Partnership and Choice Neighborhoods programs.  HOME received $950 million in funding for 2017. The program is the largest federal block grant to state and local governments designed exclusively to create affordable housing for low-income households. Many multifamily builders often use the HOME program to fund developments in conjunction with the Low Income Housing Tax Credit.

The proposed budget would provide $130 million, an increase of $20 million, for the mitigation of lead-based paint and other hazards.

The HUD budget lacked specific figures regarding Project Based Section 8 housing.

The budget also includes significant cuts to the Environmental Protection Agency, U.S. Army Corps of Engineers and the departments of Labor and Agriculture.

Again, this is the first salvo in what will be a long, drawn-out process. As lawmakers focus on budget deliberations in the coming weeks and months, NAHB will work aggressively to remove any provisions that will harm housing and push for elements that will help small businesses and the housing community.