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Financial Ratios

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Kristi Reale, CPA, CVA
Sections Supplements
Understanding This Powerful Tool for Managing for Success

Kristi Reale, CPA, CVA

Kristi Reale, CPA, CVA

Performance management is an important component of running a business, and there are many tools available to help a company identify, measure, and manage its performance. The use of financial ratios is a time-tested, quantitative method of analyzing a company’s financial statements and provides a detailed, clear picture of the company’s financial performance.
Financial ratios are also utilized by bankers and other lenders to learn about a company’s health and determine its credit worthiness. This article will provide an overview of the standard financial ratios most often used by business owners, management teams and lenders.
The four basic categories of financial ratios discussed below are liquidity ratios, efficiency ratios, leverage ratios, and profitability ratios. Within these categories, here are the most common measures used.

Liquidity Ratios
Based on balance-sheet line items, liquidity ratios measure your company’s ability to meet its near-term obligations, or how much cash the business has on hand for immediate use. These are among the first ratios that are used by lenders when considering a company’s loan request.
Current Ratio: Current assets divided by current liabilities — the extent over which current assets cover current liabilities and a snapshot of the ability to generate sufficient cash to cover short-term liabilities. In theory, the higher the current ratio, the better.
Quick Ratio: Cash and cash equivalents plus net receivables divided by current liabilities — a conservative creditor’s view because it excludes the least-liquid current assets (inventory and prepaids). A higher ratio means a more liquid current position.
Working Capital: Current assets minus current liabilities — this measurement provides an indication of the company’s ability to generate resources.

Efficiency Ratios
Efficiency ratios come from line items on both the balance sheet and profit-and-loss statement and are typically used to analyze how effectively a company is turning over its accounts receivable, or inventory, and thus able to meet both its short-term and long-term obligations. These ratios are key indicators of how well a company uses its assets and manages its liabilities.
Accounts-receivable Turnover: Net revenue divided by average accounts receivable and days’ sales in accounts receivable: 365 divided by accounts-receivable turnover — the number of times receivables turn into cash in a year (turnover) and the average length of time from a sale to cash collection.
Inventory Turnover: Cost of goods sold divided by average inventory and days’ sales in inventory: 365 divided by inventory turnover — the number of times inventory is liquidated in a period (turnover) and calculates the number of days it takes to sell inventory. These ratios can help to determine if too little or too much inventory is on hand.

Leverage Ratios
Also based on balance-sheet line items, leverage ratios measure a company’s likely ability to meet its debt obligations by looking at its after-tax income, excluding non-cash depreciation expenses, as compared to the company’s total debt obligations. These measures of financial health are among the most important since the more debt a company has, the riskier its stock is.
Debt to Equity: Total liabilities divided by total equity — a measurement of how much suppliers, lenders, creditors and obligators have committed to the company versus what the stockholders have committed. A lower percentage means that a company is using less leverage and has a stronger equity position; the reverse means you are highly leveraged.
Interest Coverage Ratio: Operating income divided by interest expense — an indication of how easily the company is able to cover the interest expense on outstanding debt. The lower the ratio, the more the company is burdened by the expense of carrying debt.

Profitability Ratios
Profitability ratios come from data on both the profit-and-loss statement and the balance sheet. These ratios measure a company’s ability to generate a profit. They are most useful when compared to industry averages.
Gross Profit Ratio: Gross profit divided by net revenues — a measurement of the amount of profit as a percent of sales generated. It is a good indication of control over cost of sales and pricing and detects positive and negative trends.
Return on Assets: Net income divided by average total assets — an indication of how profitable a company is relative to its total assets and how well management is employing the company’s total assets. The higher the return, the more efficiently management is utilizing its asset base.
Return on Equity: Net income divided by average stockholders’ equity — highly regarded as a profitability indicator, net income is compared to average stockholders’ equity and measures how much the stockholders earned for their investment in the company. The higher the ratio, the more efficiently management is utilizing its equity base, and the better the return to investors.
The use of financial-ratio analysis can be beneficial in a number of ways. Utilizing ratios in the comparison of current periods versus prior periods provides a quick and accurate means of identifying trends, opportunities, and possible problems that may be emerging. You may also consider comparing your company’s ratios with ‘standard ratios’ within your industry to benchmark how your company is doing in relation to other companies.
These two views of your company’s performance can tell you a great deal about where your company is and where it needs to be. Your accountant and banker are also in a good position to help you identify those operational activities that impact each of the financial ratios. When you work with your management team, financial ratios can provide a focal point for strategic planning and execution.

Kristi Reale, CPA, CVA is a senior manager with Meyers Brothers Kalicka, P.C. in Holyoke. In addition to the tax, accounting, and consulting services she provides clients, she is also a certified valuation analyst.

Electing Small-business Trusts

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Sections Supplements
An Effective Way to Plan for Succession in a Closely Held Business

Julie Lackner, Esq.

Julie Lackner, Esq.

Planning for an estate that includes an interest in a closely-held business always requires special attention. Not only will the business likely be the culmination of a lifetime of work, it is usually a large part of the owner’s estate. If the business interest is in the form of S-corporation stock, even greater care must be taken to ensure that the benefits of S-corporation treatment are not lost.
An S corporation enjoys substantial income-tax benefits because its shareholders are subject to only one layer of taxation, instead of the two layers imposed upon a C corporation. In order for a corporation to qualify for S treatment, a number of requirements must be met as follows:
• The corporation can have no more than 100 shareholders;
• No shareholder can be a non-resident alien individual;
• The corporation can have only one class of stock; and
• No shareholder can be an entity other than estates, certain charities, and certain types of trusts.
The primary operating document in an estate plan is often a revocable trust, so care must be taken to ensure that the trust complies with the S-corporation rules and that the beneficiaries of the trust are qualified shareholders. If either of these conditions is not met, the disastrous result will be that the corporation will lose its S status and its favorable tax treatment for all its shareholders.
One type of trust that always qualifies as a shareholder of an S corporation is the statutorily created Electing Small Business Trust (ESBT). The ESBT was created by Congress in 1996 as a means of authorizing a discretionary trust to be a qualified shareholder. Prior to the creation of the ESBT, the only type of trust that was authorized to hold S corporation stock after the death of the grantor was the Qualified Subchapter S Trust (QSST).
The QSST has the drawback, however, of allowing only a single-income beneficiary, to whom all of the income of the trust must be distributed currently. The income beneficiary is also the only beneficiary of the trust principal while he or she is alive. These restrictions on the trust diminish its usefulness as an estate-planning tool. The ESBT, on the other hand, allows for multiple-income beneficiaries, among whom the trustee can distribute income and principal at the trustee’s discretion, as well as allow income to be accumulated within the trust.
There are only two requirements for a trust to qualify as an ESBT:
• All of the beneficiaries must be either individuals who are U.S. citizens or resident aliens, estates, or certain types of charitable organizations; and
• None of the beneficiaries can have acquired his or her interest in the trust by purchase or taxable exchange.
For purposes of determining whether an S corporation has fewer than 100 shareholders, all the potential current beneficiaries of the trust are counted. A potential current beneficiary is any beneficiary to whom the trustee is required or has the discretion to make current distributions of income or principal. A beneficiary who has only a future interest in the trust is not counted as a shareholder of the ESBT. On the other hand, for purposes of determining whether all the individual beneficiaries are U.S. citizens or resident aliens, all the beneficiaries of the trust, including those holding a remainder or reversionary interest, are taken into account.
To elect ESBT treatment, the trustee must sign and file a specified statement with the IRS. The statement must include:
 • The name, address, and taxpayer-identification number of the trust;
• The potential current beneficiaries, and the S corporations in which the trust currently holds stock;
• An identification of the election as an ESBT election made under the relevant Internal Revenue Code section;
• The first date on which the trust owned stock in each S corporation;
• The date on which the election is to become effective (not earlier than 15 days and two months before the date on which the election is filed); and
• Representations signed by the trustee stating that the trust and all the potential current beneficiaries meet the definitional requirements of the relevant code section.
The ESBT has the advantage of greater flexibility for estate-planning purposes, but it carries a higher tax cost than most other trusts. For the portion of an ESBT that holds S-corporation stock, the trust is taxed at the highest individual income-tax rate, regardless of whether it distributes the income from the S-corporation stock to the beneficiaries. If the beneficiaries of the trust are not in the highest income tax bracket, the ESBT can carry a significant tax cost. For example, in 2010, the highest marginal income-tax rate was 35%.
All the income of the ESBT would be taxed at that rate, even if was distributed to beneficiaries who were all in the 15% bracket. For a $10,000 distribution, that is the difference between paying taxes of $3,500 versus $1,500. Furthermore, the trust cannot take many of the deductions or offsetting losses that would be available to an individual beneficiary.
The trustee must weigh the options and determine whether the greater flexibility is worth the higher tax cost of the ESBT. Although the election to be treated as an ESBT is irrevocable, the ESBT can be converted to a QSST under certain circumstances to take advantage of pass-through taxation.
The ESBT can be a very useful tool in planning for an estate that will hold S-corporation stock. It provides greater flexibility, albeit at a higher tax cost, than other subchapter S-qualified trusts. Such trusts must be carefully drafted, however, because their many technical requirements can prove to be a trap for the unwary.
 
Julie R. Lackner is an estate-planning attorney with the Springfield-based regional law firm Bacon Wilson, P.C. She is a member of the Estate Planning Council of Hampden County and the National Academy of Elder Law Attorneys; (413) 781-0560; baconwilson.com; bwlaw.blogs

Don’t Get Tripped Up

By
Sections Supplements
Mapping the Best Route for Higher Travel-expense Deductions

Kristina Drzal Houghton

Kristina Drzal Houghton

Some business owners and managers think of traveling for business as burdensome; however, others enjoy such trips and seek opportunities for additional travel. One reason is that the IRS business travel rules make it possible to obtain unique tax benefits. For example, the deduction for the round-trip cost of travel undertaken primarily for business can effectively subsidize a mini-vacation taken along the way, or result in a partially tax-free perk for an employee.
The deduction for travel expenses must pass various tests — in particular, whether a sufficiently direct connection exists between the expenses and the income-producing activity of the taxpayer and whether the expenses are excess or personal in nature. In addition to these controversial rules, the IRS limits deductions for business travel when involving foreign travel, including conventions, cruise-ship conventions, and when spouses accompany the business traveler. This article will explain the often-complex limits on deductions.
In general, deductions for travel expenses are allowed because the costs either are duplicative of expenses that the taxpayer must pay in any event (e.g., a taxpayer who rents a hotel room while out of town on a two-week business trip must continue to pay rent or other expenses for his residence even though he is away), or require the taxpayer to pay more for some expenses than he would if he were at home (e.g., meals). Nonetheless, the deduction allows somewhat of windfall to the taxpayer because, in the Supreme Court’s words, “at least part of what he spends … represents a personal living expense that other taxpayers must bear without receiving any deduction at all.”
Travel to a business convention is treated as business travel if attendance benefits the taxpayer’s trade or business. If a business convention takes place outside of the U.S. but within the North American area, the trip is treated the same way as any other form of business travel. In general, the North American area includes Canada, Mexico, Puerto Rico, the U.S. Virgin Islands, Bermuda, and numerous Caribbean countries such as Barbados, Costa Rica, the Dominican Republic, Grenada, Jamaica, Saint Lucia, Trinidad, and Tobago.
If the foreign convention takes place outside of the North American area, then there’s no business travel deduction unless the meeting is directly related to the active conduct of the taxpayer’s trade or business, and the taxpayer can prove that it is as reasonable for the convention to be held outside of the North American area as within it. An example of this would be the residences of the active members of the sponsoring organizations and places where other meetings of the sponsors have been or will be held.
Even if a foreign convention satisfies the ‘as reasonable’ test, the taxpayer does not automatically get a deduction for all his travel expenses. Foreign-convention travel expenses remain subject to the allocation rules that apply to foreign business travel.
The foreign business-travel rules diverge from those for domestic business travel when the taxpayer undertakes a trip primarily for business reasons, but also takes some personal days at the foreign destination. In this situation, the transportation expenses must be allocated between deductible business activities and non-deductible personal activities, unless one of the tests is met. These tests include:
• The traveler had no substantial control over arranging the trip;
• The trip is for one week or less;
• Less than 25% of the time outside the U.S is for personal matters; or
• Vacationing was not a major consideration in arranging the trip.
If foreign travel doesn’t meet one of these four full-deductibility tests, the non-deductible portion of the transportation expenses — the cost of getting there and back — generally is determined by using a day-to-day allocation formula.
When a convention takes place on a cruise ship, another set of rules apply. A cruise ship, for purposes of these rules, is any ship sailing within or outside of U.S. territorial waters. No deduction is allowed for business or professional conventions held on a cruise ship unless:
• The convention is held on a U. S.-registered cruise ship;
• All ports of call during the convention are in the U.S. or U.S. possessions; and
• The taxpayer can establish that the meeting is directly related to the active conduct of his trade or business.
If the convention meets these rules, there still is a dollar cap on the amount deductible. This cap is $2,000 per person annually.
Some taxpayers take their spouses or other companions along on business trips. Although the rules are tough, in some cases it may be possible to deduct the spouse’s (or other companion’s) travel expenses, or be reimbursed for those expenses tax-free. In fact, there may be a benefit to the business traveler even if the spouse’s (or other companion’s) travel expenses aren’t deductible or reimbursable tax-free.
As a general rule, the IRS allows no deduction for travel expenses paid or incurred for a spouse, dependent, or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel, unless:
• The spouse, etc. is an employee of the taxpayer;
• The travel of the spouse, etc. is for a bona-fide business purpose; and
• The expenses would otherwise be deductible by the spouse, etc.
This rule does not apply to a companion who is the taxpayer’s business associate (e.g., an unrelated fellow employee), makes the trip for a bona-fide business purpose, and could otherwise deduct the travel expense if he or she incurred it.
When an employee is away from home overnight on business, the employer may decide to reimburse the travel expenses of his spouse or other travel companion. If the travel does not qualify as an excludable fringe benefit, the employee must include in gross income the value of the spouse’s or other companion’s company-paid travel expenses.
Where a corporation fails to include the spousal travel in an employee’s W-2, the corporation can be disallowed the deduction. This disallowed deduction does not eliminate the employee being required to report income related to this benefit. This can be particularly burdensome where the employee is a shareholder owner.
An employer can avoid winding up with disallowed deductions for a spouse accompanying an employee on business travel by characterizing the travel as employee compensation on its originally filed return, and as wages for Social Security and income-tax withholding.
What is a bona-fide business purpose for the spouse’s presence? There is no detailed guidance on this question. IRS guidance states that the taxpayer “must prove a real business purpose for the individual’s presence. Incidental services, such as typing notes or assisting in entertaining customers, are not enough to warrant a deduction.”
Depending on the circumstances, however, a bona-fide business purpose probably would be found to exist where the spouse or other companion:
• Performed the duties of a secretary (scheduling meetings and appointments, writing up notes of meetings, checking and answering office e-mail);
• Acted as a translator for the business person (e.g., a spouse fluent in Spanish accompanies an executive on a Latin-American trip); or
• Went along to trade shows and assisted with running the company’s booth or display.
Even if the spouse’s or other companion’s travel isn’t deductible, the taxpayer may still be able to deduct a substantial portion of the trip’s costs. That’s because the rules don’t require the business traveler to allocate 50% of his travel costs to the spouse. The business traveler only has to allocate to the spouse any additional costs incurred for him or her. And if the business traveler drives their own car or rents a car, the cost will be fully deductible even if the spouse is along for non-business purposes. Of course, any separate costs incurred on behalf of a spouse for public transportation and for meals would not be deductible at all.
While the idea of traveling seems straightforward, it should be clear by now that it is almost mind-boggling how complicated the tax rules in this area have become. However, with proper planning and good tax guidance, a traveler can structure business travel to reap the greatest benefit.

Kristina Drzal-Houghton, CPA, MST is the partner in charge of Taxation at Holyoke-based Meyers Brothers Kalicka, P.C.; (413) 536-8510.

Communications Breakdown

By
Sam Galiatsatos
Sections Supplements
Green Monster e-Cycling Finds New Uses for High-tech Trash

Sam Galiatsatos

Sam Galiatsatos sits atop three days’ worth of dropoffs waiting to be broken down.

“Look at these dinosaurs,” Sam Galiatsatos said, prodding a hulking television console with his foot. “They come here to die.”
That mound of outdated TVs at Green Monster e-Cycling is one of many piles stacked on the warehouse floor, arrayed on shelves, or deposited in large boxes, all sorted by type: computer monitors, air conditioners, circuit boards, copper wiring, and plastic, metal, and glass pulled from hard drives, TV sets, and other equipment. And much more.
“We are an electronics recycling and processing company,” said Galiatsatos, whose brother, Joe, started the outfit four years ago in his garage in West Hartford, Conn. before moving to a 20,000-square-foot space soon after. Sam operates the just-opened Springfield site on Turnbull Street, the company’s second location — but likely not the last.
“From its inception, Green Monster has been an organic-growth type of company,” he said. “It’s evolved from being a service that only processes the electronic waste from the general population to one that also handles the environmental-health, safety, and sustainability directives that small, mid-sized, and large companies have to abide by.”
It also offers a line of information-technology services to customers, installing and servicing equipment that hasn’t quite reached the dinosaur stage yet. But the company’s considerable early success rests largely in showing people an environmentally friendly way to get rid of the equipment they can no longer use.
“It’s reverse supply-chain logistics,” Galiatsatos said. “We receive manufactured electronic goods of different sorts from different sources, and, typically speaking, we recycle about 80% to 90% of what comes in here. We take apart and sell the scrap metal to companies that use metal, plastics to companies that use plastic, and electronic components to companies that break them down further and extract whatever they want.”
A few pieces that arrive are actually usable with a little refurbishing; for example, an occasional discarded laptop has found a second life in the Green Monster offices. But for the most part, the computers, monitors, TVs, and phones that make up a large percentage of donations indeed comprise a high-tech Jurassic Park.

Waste Not
E-waste, as Galiatsatos calls it, can include just about any device with a battery or a power plug that’s no longer wanted, from computers and printers to televisions and monitors; from VCRs and DVD players to kitchen appliances and power tools. All have the potential to pollute the environment when tossed out, and all contain parts which, on their own, have value.
To create that value, Green Monster accepts dropoffs of electronic and computer equipment from residents free of charge, as well as partnering with businesses and municipalities to collect their outdated items. All electronics are torn down to their basic components, which are then sorted into batches of similar materials and sold to refiners, smelters, and other companies that can use them.
Joe Galiatsatos said the idea for Green Monster sprang from his realization that tons of electronics were being tossed into landfills daily, or else being exported in an unsafe manner. With the tide shifting in business toward more ‘green’ practices, he saw an opportunity in the recycling of such materials.
He was right; from its humble garage beginnings in 2007, the company has at least tripled its work volume in each subsequent year, serving Connecticut municipalities, transfer stations, businesses, and individuals.
Sam Galiatsatos — who learned a lot about electronics and avionics components while in the Air National Guard, stationed in Westfield — had been working in various types of energy consulting when Green Monster started to grow. When the opportunity arose to join the company full-time, he jumped at it, telling BusinessWest that he believes in the green economy and sustainable practices, and loves coming to work every day to live those ideals.
Sustainability comes in different forms, however, and Galiatsatos said he also strives to support the local economy by partnering with area companies in his recycling efforts. “I believe in Springfield,” he said. “And people have greeted me here with open arms.”
The timing for further growth seems right, as companies move toward cloud computing, or Internet-based computing, whereby shared servers provide resources, software, and data to individual computers and other devices.
“That’s a growth opportunity for our business,” he said. “Where a company once needed a room to do its computing, now it can do all that from a terminal at a desk. We can take all their antiquated electronics, break them down, and offer them to different companies.”
Green Monster’s Springfield facility now employs three people, with plans to increase that to 12. Meanwhile, the brothers have their eyes on future expansion, possibly in the Easthampton and Pittsfield areas. But they’re not moving too aggressively, opting instead for what Sam Galiatsatos called “smart growth.”
“That’s our business model; I believe in organic growth,” he said, noting again that Hampden County has been a good fit so far. The firm is gradually adding business clients, including the city of Springfield, Manny’s TV & Appliances, Savers, and also MassMutual, which will be holding simultaneous electronic-waste drives at its Springfield and Enfield locations on Earth Day next month.

Change of Habit
Galiatsatos said Americans toss in the trash out all sorts of things they shouldn’t, from old phones to used batteries, because they’re not thinking of the long-term effects of what winds up in landfills. That’s why he and his brother are trying to educate the public, realizing that what’s good for their business is also simply good stewardship of the earth.
“Don’t just chuck your stuff,” he said, admitting that he, too, used to throw out such items without thought. “If that trash bag is biodegradable, it’s designed to break down in five years, which is great. But then the [electronic] components will break down in 15 years. And they’ll contaminate the environment for 150 years.”
Unless those dinosaurs — or at least their various parts — find new homes.

Joseph Bednar can be reached at [email protected]

‘Seemingly Bright’

By
James Allan, co-director of UMass Amherst’s Center for Intelligent Information Retrieval.
Sections Supplements
What Is the Future of the So-called ‘Watson’ Technology?

James Allan, co-director of UMass Amherst’s Center for Intelligent Information Retrieval.

James Allan, co-director of UMass Amherst’s Center for Intelligent Information Retrieval.

The recent Jeopardy! contests featuring IBM’s Watson computer was a success on a number of levels, from television ratings to exposure for IBM and its products. In a quieter fashion, the show and the computer have shed some light on what’s known as question-answering, or QA, technology, and the important work being done in this realm by UMass Amherst and its Center for Intelligent Information Retrieval, which is hard at work finding new and better ways to search materials, extract information, and help people make sense of the information they retrieve.

The correct response, or question, in Jeopardy! parlance, was, “what is Chicago?”
The category was U.S. Cities, and the answer (paraphrasing) was ‘this city’s two airports are named after a war hero and a World War II battle.’
Watson, the IBM-designed supercomputer that cost between $100 million and $2 billion to develop, depending on who is answering that question, ‘wrote’ “what is Toronto” in its Final Jeopardy space.
Hmmmmm.
“That just goes to show that computers can’t do some things as well as humans,” said James Allan, a computer scientist at UMass Amherst and co-director, along with Bruce Croft, of the university’s Center for Intelligent Information Retrieval (CIIR). While not a real fan of the show, he watched every minute of the Jeopardy! episodes involving Watson and his routing of the show’s most accomplished human champions, because UMass — and specifically its CIIR — was one of eight universities collaborating with IBM on the question-answering, or QA, technology behind the company’s new computing system.
So how could Watson, the system named after IBM founder Thomas J. Watson, have made a mistake that most grade-school students wouldn’t have?
It’s fairly simple, said Allan, noting that the computer, in its sophisticated search of a host of databases for the answer, focused on the ‘two airports/war hero’ aspect of the query, and not as much (obviously) on the ‘U.S. Cities’ part. (For the record, the question refers to Chicago’s O’Hare and Midway airports, but one of Toronto’s airports is named after William “Billy” Bishop, a Canadian World War I fighter ace.)
“Toronto’s case is very similar, but not exactly the same as Chicago’s,” Allan explained, adding that the search, in this instance, went in a similar fashion to another of Watson’s few missteps.
The question (answer) from the category Alternate Meanings was ‘stylish elegance or students who all graduated together.’ Watson’s reply was ‘chic’ — other options it considered were ‘panache’ and ‘Vera Wang’ (more on how it could have arrived at such candidates later) — while the correct response was ‘class.’ “Here, ‘stylish elegance’ was obviously more important to Watson,” said Allan, adding that ‘chic’ clearly doesn’t have a definition approaching a ‘group of classmates.’
But while Watson had some wrong answers that led to some serious head-scratching, and even a snicker from Jeopardy! host Alex Trebek, the focus should certainly be on how many questions it got right, said Allan, noting that the computer exceeded the expectations of all but the most optimistic of the individuals involved in the project. And the stunning performance, coupled with vast amounts of hype — television commercials on the Jeopardy! experience were still running weeks after the shows aired — has brought QA technology and its more practical uses to the forefront.
Some of the more obvious of these are in health care, said Allan, noting that IBM, in tandem with voice-recognition software maker Nuance, is already working to produce a medical version of the computer system. It will use speech recognition, super-fast processing, and massive databases to help doctors and nurses find answers to questions from and about patients.
The intelligence sector is another logical landing place for Watson-like technology, he said, adding that a such a system can and likely will be used in “any situation in which getting the answer quickly is an important step in the process.”
Meanwhile, Watson’s exploits have brought some attention — MIT received considerably more — to UMass and the CIIR. Launched in the late 1990s, the center’s work comes down to one word — search — and how to do it better, faster, and more efficiently.
“We look for ways to search for things, ways to organize materials, ways to help people build queries, ways to present what’s on there,” he said. “We’re very interested in issues that are new and interesting; more and more, people are using streaming media, stuff that comes at you all the time, like Twitter feeds and news feeds.
“We’re focusing on finding ways to use computers to help pull from that fire hose of information coming at you stuff that’s interesting to you and also different from what you’ve already seen,” he continued. “In other words, we want to answer the question, ‘how do you find new and interesting stuff in all the stuff that’s constantly arriving?”
For this issue and its focus on technology, BusinessWest takes an indepth look at the Watson technology and its vast potential, and also sheds some light on the ongoing work at the CIIR and how computer scientists at UMass continue to search for answers to the question of how to make computers search better and faster.

It’s Elementary
Allan admitted to BusinessWest that, deep down, he didn’t think Watson would beat his human opponents, and he never imagined the kind of drubbing the computer eventually administered.
This mindset had more to do with the quality of the computer’s opponents than any lack of confidence in the system he and his team helped create. In the end, though, he learned at least a few things — first, that Watson was indeed quite skillful in searching and then finding the right answer, and second, that he was really good at ‘buzzing in,’ as it’s called in Jeopardy!
Actually, some would say the computer had an unfair advantage in that regard, said Allan, noting that many Jeopardy! players don’t fare well on the show, not because they lack smarts, but because they lack good timing with that buzzer. Hitting it too early locks a contestant out for a costly fraction of a second, he explained, and hitting it too late isn’t good, either, obviously.
Watson, because it’s a machine, essentially had perfect timing with the buzzer, he said, adding that he, like all viewers, could see some frustration on the part of Watson’s opponents, and especially Ken Jennings, who knew many of the answers but simply couldn’t buzz in faster than the computer.
That skill — not to mention Watson’s odd ‘Daily Double’ wagers (those certainly weren’t round numbers) — came from some other contributors, said Allen, noting that the CIIR’s assistance came in the form of information retrieval, or text search. This capability of QA technology is the first step taken when looking for text that’s most likely to contain accurate answers. The system’s deep language-processing capabilities then analyze the returned information to find the actual answers within that text.
What IBM essentially borrowed from UMass and adopted for its own use is an open-source software product called Indri that effectively initiates and facilitates the computer’s search for the information that will ultimately lead to an answer, and preferably the right one.
“The question you have essentially becomes a search request,” he explained. “And a search engine, just like a Web-search engine, goes out and searches all the text, the unstructured free text we have available, to pull back portions of documents that seem likely to have an answer. The way that works in a question-answering system is that all those documents are then passed on to the next steps, which do a lot more deep processing to try to extract the specific answer.”
There were many components to Watson’s success, Allan continued, but the search software was critical.
“Search is a very important first step in the question-answering process. If we don’t find the answer, then the system can’t work,” he explained. “If the search step fails early on, all the rest of it doesn’t matter.”
The process of taking a question and arriving at an answer has several components, said Allan, all of them handled in about three seconds total. Specifically, the computer:
• Identifies plausable targets;
• Builds queries to find answers;
• Searches unstructured text for matching text;
• Extracts candidates from the text;
• Looks for evidence for each candidate;
• Scores the candidates; and
• Ranks them and decides if it’s confident enough to choose one.

Nowhere to Hyde
Using some fairly simple language, Allan explained how it all works, using a question from one of the Jeopardy! shows. From the category Literary Character APB (all points bulletin) came the question (answer) ‘Wanted for killing Sir Danvers Carew; appearance: pale & dwarfish; seems to have a split personality.’ Here’s how Watson arrived at the correct answer (question): ‘Hyde,’ as in Mr. Hyde, the alter ego of Dr. Jekyll.
First, it looked at possible targets for the answer (question), said Allan, meaning something or someone that can be wanted, has an appearance, is involved in a killing, and has a personality — more specifically, a split one. The computer then looks for strings that fill all of those, working on the premise that the target is probably a noun, possibly a person (though other animate objects fit), and the category’s key words are ‘literary,’ ‘character,’ and ‘ABP.’
The computer then builds a query from the question (answer), Allan continued, with some words and phrases becoming important: in this case, ‘killing,’ ‘Danvers Carew,’ ‘pale,’ ‘dwarfish,’ and ‘split personality.’ Then, using the CIIR’s Indri search engine, the computer searches text sources — encyclopedia articles, dictionaries, books, newspapers, movie scripts, and some added material needed for Jeopardy!, including the complete works of William Shakespeare.
Next, the computer extracts candidates from the text it searches, he continued, adding that, in this case, it would come across passages such as “Sir Danvers Carew: member of Parliament who is murdered by Hyde,” “Mr. Hyde was pale and dwarfish,” “Mr. Hyde-type split personality,” and “Sherlock Holmes solves the mystery surrounding Jekyll and Hyde.” It would then identify candidates such as:
• Sir Danvers Carew, member of Parliament;
• Murdered, Hyde;
• Sherlock Holmes, mystery; and
• Jekyll.
It would then look for evidence to support candidates, or not support them, as the case may be. ‘Parliament,’ for example, has no personality, and it’s also real, not a literary character; ‘mystery’ is not a character; ‘murdered’ is not a noun; but ‘Hyde’ is a person, has a connection to Jekyll, was the killer of Carew, was wanted, had a split personality, and is fictional.
Fast-forwarding, Allan said Watson eventually came up with three candidates — ‘Hyde,’ ‘Sherlock Holmes,’ and ‘Dracula’ (who indeed had a split personality), and ranked the three in terms of its confidence level — 71%, 15%, and 7%, respectively, and thus chose ‘Hyde.’

Creating a Buzz
That lengthy tutorial explains, sort of, how and why Watson kicked ass on Jeopardy!, said Allan, but it also shows the vast potential for this technology to help users answer questions when there is much more at stake than winning a game show.
Noting that the Watson system used for Jeopardy! is about the size of 10 full-size refrigerators, Allan said that model doesn’t have very many practical, or affordable, applications. But the basic technology (not the buzzing-in capability) does.
“You can get a lot of Watson’s power without all of Watson,” he explained, adding that IBM is already marketing the technology in a smaller, slightly slower package, especially to the health care community, where there is a great deal of potential.
“What is the recommended dose of ibuprofen for a 10-year-old child? — that’s the kind of question this technology can answer and answer quickly,” he explained, adding that there are myriad other examples of medically related questions that don’t involve cause and effect, or subjective thinking, that a computer can help with.
Intelligence analysis, from both business and national-security perspectives, is another potential landing spot, he said, stressing again that the technology is most relevant in realms where correct answers — and speed — are equally critical. “‘Name the people who were seen with Gadhafi in the last year?’ — that’s the kind of question that can be answered.”
As for the CIIR, meanwhile, the Jeopardy! project may be over, but the work to find new and better ways to extract information from a host of databases goes on.
“We have a large project going on now concerning why people want to search books and how we can do that better,” he said. “Some of the early work we’re doing is in collaboration with humanities scholars who want to look at old books, read them, analyze them, and understand what’s happening.”
Meanwhile, Allan said he is spending a good deal of his time involved with something called ‘information literacy.’
Elaborating, he said this genre, if it can be called that, involves helping someone looking at a Web page decide whether — and how much — to trust the material in question.
“We don’t want to tell them whether it’s right or wrong, necessarily,” he explained. “But we want to help them look at it and be literate about material and look at it critically.”
As an example, he cited a theoretical cancer-treatment page.
“There are a lot of bogus cancer treatments out there, but the Web sites look very good; they’re beautifully crafted and seem authoritative,” he explained. “We want to help people look at something like this and decide whether it is to be believed, or how to go about deciding.”
Coming up with answers to such questions will likely take years, not a few seconds, said Allan, adding quickly that, while IBM’s computer amazed those who watched it, the realm of information retrieval and analysis is still in its infancy, and the art of the search is still a work in progress.

Class Act
Watson’s ‘Toronto’ answer shows that QA technology, while it has witnessed significant advances over the years, still has some limitations, said Allan.
But the system’s performance — not the final scores in relation to its human opponents, necessarily, but the number of questions it answered correctly — shows that great strides have been made in enhancing a computer’s ability to understand language, take a question, and efficiently search for the answer.
Where this technology will wind up and when are questions no one can fully answer at this point, he continued, but the practical applications are many.
So, for this exercise, Watson went to the head of the class — and not the ‘chic’ — and showed a good deal of style in the process. n

George O’Brien can be reached
at [email protected]“That just goes to show that computers can’t do some things as well as humans,” said James Allan, a computer scientist at UMass Amherst and co-director, along with Bruce Croft, of the university’s Center for Intelligent Information Retrieval (CIIR). While not a real fan of the show, he watched every minute of the Jeopardy! episodes involving Watson and his routing of the show’s most accomplished human champions, because UMass — and specifically its CIIR — was one of eight universities collaborating with IBM on the question-answering, or QA, technology behind the company’s new computing system.
So how could Watson, the system named after IBM founder Thomas J. Watson, have made a mistake that most grade-school students wouldn’t have?
It’s fairly simple, said Allan, noting that the computer, in its sophisticated search of a host of databases for the answer, focused on the ‘two airports/war hero’ aspect of the query, and not as much (obviously) on the ‘U.S. Cities’ part. (For the record, the question refers to Chicago’s O’Hare and Midway airports, but one of Toronto’s airports is named after William “Billy” Bishop, a Canadian World War I fighter ace.)
“Toronto’s case is very similar, but not exactly the same as Chicago’s,” Allan explained, adding that the search, in this instance, went in a similar fashion to another of Watson’s few missteps.
The question (answer) from the category Alternate Meanings was ‘stylish elegance or students who all graduated together.’ Watson’s reply was ‘chic’ — other options it considered were ‘panache’ and ‘Vera Wang’ (more on how it could have arrived at such candidates later) — while the correct response was ‘class.’ “Here, ‘stylish elegance’ was obviously more important to Watson,” said Allan, adding that ‘chic’ clearly doesn’t have a definition approaching a ‘group of classmates.’
But while Watson had some wrong answers that led to some serious head-scratching, and even a snicker from Jeopardy! host Alex Trebek, the focus should certainly be on how many questions it got right, said Allan, noting that the computer exceeded the expectations of all but the most optimistic of the individuals involved in the project. And the stunning performance, coupled with vast amounts of hype — television commercials on the Jeopardy! experience were still running weeks after the shows aired — has brought QA technology and its more practical uses to the forefront.
Some of the more obvious of these are in health care, said Allan, noting that IBM, in tandem with voice-recognition software maker Nuance, is already working to produce a medical version of the computer system. It will use speech recognition, super-fast processing, and massive databases to help doctors and nurses find answers to questions from and about patients.
The intelligence sector is another logical landing place for Watson-like technology, he said, adding that a such a system can and likely will be used in “any situation in which getting the answer quickly is an important step in the process.”
Meanwhile, Watson’s exploits have brought some attention — MIT received considerably more — to UMass and the CIIR. Launched in the late 1990s, the center’s work comes down to one word — search — and how to do it better, faster, and more efficiently.
“We look for ways to search for things, ways to organize materials, ways to help people build queries, ways to present what’s on there,” he said. “We’re very interested in issues that are new and interesting; more and more, people are using streaming media, stuff that comes at you all the time, like Twitter feeds and news feeds.
“We’re focusing on finding ways to use computers to help pull from that fire hose of information coming at you stuff that’s interesting to you and also different from what you’ve already seen,” he continued. “In other words, we want to answer the question, ‘how do you find new and interesting stuff in all the stuff that’s constantly arriving?”
For this issue and its focus on technology, BusinessWest takes an indepth look at the Watson technology and its vast potential, and also sheds some light on the ongoing work at the CIIR and how computer scientists at UMass continue to search for answers to the question of how to make computers search better and faster.

It’s Elementary
Allan admitted to BusinessWest that, deep down, he didn’t think Watson would beat his human opponents, and he never imagined the kind of drubbing the computer eventually administered.
This mindset had more to do with the quality of the computer’s opponents than any lack of confidence in the system he and his team helped create. In the end, though, he learned at least a few things — first, that Watson was indeed quite skillful in searching and then finding the right answer, and second, that he was really good at ‘buzzing in,’ as it’s called in Jeopardy!
Actually, some would say the computer had an unfair advantage in that regard, said Allan, noting that many Jeopardy! players don’t fare well on the show, not because they lack smarts, but because they lack good timing with that buzzer. Hitting it too early locks a contestant out for a costly fraction of a second, he explained, and hitting it too late isn’t good, either, obviously.
Watson, because it’s a machine, essentially had perfect timing with the buzzer, he said, adding that he, like all viewers, could see some frustration on the part of Watson’s opponents, and especially Ken Jennings, who knew many of the answers but simply couldn’t buzz in faster than the computer.
That skill — not to mention Watson’s odd ‘Daily Double’ wagers (those certainly weren’t round numbers) — came from some other contributors, said Allen, noting that the CIIR’s assistance came in the form of information retrieval, or text search. This capability of QA technology is the first step taken when looking for text that’s most likely to contain accurate answers. The system’s deep language-processing capabilities then analyze the returned information to find the actual answers within that text.
What IBM essentially borrowed from UMass and adopted for its own use is an open-source software product called Indri that effectively initiates and facilitates the computer’s search for the information that will ultimately lead to an answer, and preferably the right one.
“The question you have essentially becomes a search request,” he explained. “And a search engine, just like a Web-search engine, goes out and searches all the text, the unstructured free text we have available, to pull back portions of documents that seem likely to have an answer. The way that works in a question-answering system is that all those documents are then passed on to the next steps, which do a lot more deep processing to try to extract the specific answer.”
There were many components to Watson’s success, Allan continued, but the search software was critical.
“Search is a very important first step in the question-answering process. If we don’t find the answer, then the system can’t work,” he explained. “If the search step fails early on, all the rest of it doesn’t matter.”
The process of taking a question and arriving at an answer has several components, said Allan, all of them handled in about three seconds total. Specifically, the computer:
• Identifies plausable targets;
• Builds queries to find answers;
• Searches unstructured text for matching text;
• Extracts candidates from the text;
• Looks for evidence for each candidate;
• Scores the candidates; and
• Ranks them and decides if it’s confident enough to choose one.

Nowhere to Hyde
Using some fairly simple language, Allan explained how it all works, using a question from one of the Jeopardy! shows. From the category Literary Character APB (all points bulletin) came the question (answer) ‘Wanted for killing Sir Danvers Carew; appearance: pale & dwarfish; seems to have a split personality.’ Here’s how Watson arrived at the correct answer (question): ‘Hyde,’ as in Mr. Hyde, the alter ego of Dr. Jekyll.
First, it looked at possible targets for the answer (question), said Allan, meaning something or someone that can be wanted, has an appearance, is involved in a killing, and has a personality — more specifically, a split one. The computer then looks for strings that fill all of those, working on the premise that the target is probably a noun, possibly a person (though other animate objects fit), and the category’s key words are ‘literary,’ ‘character,’ and ‘ABP.’
The computer then builds a query from the question (answer), Allan continued, with some words and phrases becoming important: in this case, ‘killing,’ ‘Danvers Carew,’ ‘pale,’ ‘dwarfish,’ and ‘split personality.’ Then, using the CIIR’s Indri search engine, the computer searches text sources — encyclopedia articles, dictionaries, books, newspapers, movie scripts, and some added material needed for Jeopardy!, including the complete works of William Shakespeare.
Next, the computer extracts candidates from the text it searches, he continued, adding that, in this case, it would come across passages such as “Sir Danvers Carew: member of Parliament who is murdered by Hyde,” “Mr. Hyde was pale and dwarfish,” “Mr. Hyde-type split personality,” and “Sherlock Holmes solves the mystery surrounding Jekyll and Hyde.” It would then identify candidates such as:
• Sir Danvers Carew, member of Parliament;
• Murdered, Hyde;
• Sherlock Holmes, mystery; and
• Jekyll.
It would then look for evidence to support candidates, or not support them, as the case may be. ‘Parliament,’ for example, has no personality, and it’s also real, not a literary character; ‘mystery’ is not a character; ‘murdered’ is not a noun; but ‘Hyde’ is a person, has a connection to Jekyll, was the killer of Carew, was wanted, had a split personality, and is fictional.
Fast-forwarding, Allan said Watson eventually came up with three candidates — ‘Hyde,’ ‘Sherlock Holmes,’ and ‘Dracula’ (who indeed had a split personality), and ranked the three in terms of its confidence level — 71%, 15%, and 7%, respectively, and thus chose ‘Hyde.’

Creating a Buzz
That lengthy tutorial explains, sort of, how and why Watson kicked ass on Jeopardy!, said Allan, but it also shows the vast potential for this technology to help users answer questions when there is much more at stake than winning a game show.
Noting that the Watson system used for Jeopardy! is about the size of 10 full-size refrigerators, Allan said that model doesn’t have very many practical, or affordable, applications. But the basic technology (not the buzzing-in capability) does.
“You can get a lot of Watson’s power without all of Watson,” he explained, adding that IBM is already marketing the technology in a smaller, slightly slower package, especially to the health care community, where there is a great deal of potential.
“What is the recommended dose of ibuprofen for a 10-year-old child? — that’s the kind of question this technology can answer and answer quickly,” he explained, adding that there are myriad other examples of medically related questions that don’t involve cause and effect, or subjective thinking, that a computer can help with.
Intelligence analysis, from both business and national-security perspectives, is another potential landing spot, he said, stressing again that the technology is most relevant in realms where correct answers — and speed — are equally critical. “‘Name the people who were seen with Gadhafi in the last year?’ — that’s the kind of question that can be answered.”
As for the CIIR, meanwhile, the Jeopardy! project may be over, but the work to find new and better ways to extract information from a host of databases goes on.
“We have a large project going on now concerning why people want to search books and how we can do that better,” he said. “Some of the early work we’re doing is in collaboration with humanities scholars who want to look at old books, read them, analyze them, and understand what’s happening.”
Meanwhile, Allan said he is spending a good deal of his time involved with something called ‘information literacy.’
Elaborating, he said this genre, if it can be called that, involves helping someone looking at a Web page decide whether — and how much — to trust the material in question.
“We don’t want to tell them whether it’s right or wrong, necessarily,” he explained. “But we want to help them look at it and be literate about material and look at it critically.”
As an example, he cited a theoretical cancer-treatment page.
“There are a lot of bogus cancer treatments out there, but the Web sites look very good; they’re beautifully crafted and seem authoritative,” he explained. “We want to help people look at something like this and decide whether it is to be believed, or how to go about deciding.”
Coming up with answers to such questions will likely take years, not a few seconds, said Allan, adding quickly that, while IBM’s computer amazed those who watched it, the realm of information retrieval and analysis is still in its infancy, and the art of the search is still a work in progress.

Class Act
Watson’s ‘Toronto’ answer shows that QA technology, while it has witnessed significant advances over the years, still has some limitations, said Allan.
But the system’s performance — not the final scores in relation to its human opponents, necessarily, but the number of questions it answered correctly — shows that great strides have been made in enhancing a computer’s ability to understand language, take a question, and efficiently search for the answer.
Where this technology will wind up and when are questions no one can fully answer at this point, he continued, but the practical applications are many.
So, for this exercise, Watson went to the head of the class — and not the ‘chic’ — and showed a good deal of style in the process.

George O’Brien can be reached at [email protected]

Filling in the Canvas

By
ICNE Dave Florian, Bill Trudeau, and Dean Florian
Sections Supplements
Former Banquet Hall Gives ICNE Plenty of Food for Thought

ICNE Dave Florian, Bill Trudeau, and Dean Florian

From left, Dave Florian, Bill Trudeau, and Dean Florian, stand near the front entrance of the new headquarters for Insurance Center of New England.

When Insurance Center of New England commenced a search for new headquarters space last year, the focus soon centered on the former Oaks banquet facility on Suffield Street in Agawam. The site provided ample parking, room to grow, space to expand a health-and-wellness initiative, and even acreage on which to start an employee-managed vegetable garden. In short, this was an exercise in stretching the imagination — and the limits of creative space utilization.

Bill Trudeau was pointing to the spots where the treadmills, elliptical machines, and spinning bikes would go, and conjecturing on what the room would look and feel like when fully ready for occupancy.
“It’s not going to be the Y … it’s not going to be LA Fitness,” he said of the workout room still taking shape at the new headquarters for Insurance Center of New England. “But it’s going to be really nice, a big step up for us.”
Those same words would be appropriate for just about every aspect of ICNE’s new home — from the spacious conference room, decorated with modern art and equipped for videoconferencing, to the locker rooms across the hall from the gym, to the inviting front lobby — that was creatively carved out of the former Oaks banquet facility on Suffield Street in Agawam, with some 5,000 square feet left over to lease out to prospective tenants.
The company moved in last month, completing a project that had been in the works for some time, but that moved forward in earnest when the Oaks property quietly, and unofficially, went on the market early in 2010.
As Trudeau, the company’s president, explained, ICNE had been fairly content in its now-former home at 246 Park St. in West Springfield, where it had leased up to 12,000 square feet since 1987. But the company’s principals had essentially decided a few years ago that they would much rather own their space than lease.
After efforts to acquire the Park Street property were unsuccessful, the company started looking at a host of other options, said CEO Dean Florian. These actually included other leasing alternatives — space in some downtown Springfield office towers was looked at — but mostly focused on new building or renovation possibilities.
And there were not many viable options, he continued, adding that the company did consider a building lot at the end of Route 57 in Agawam. But the search essentially ended when Trudeau, Florian, and his brother, Dave, the company’s executive vice president and CFO, toured the Oaks property in early 2010 and started considering the myriad possibilities it presented.
“This building offered us a lot of flexibility,” said Dave Florian. “We had what amounted to a blank canvas we could fill in as we wanted. And working on that canvas has been a lot of fun.”

Space Exploration
Creating this broad work of art — meaning reuse of the building and adjoining five acres, including parking for several hundred cars — has been a nine-month project that has allowed ICNE executives, working in collaboration with Springfield-based Corporate Designs, architect Roy Brown, and office furniture firm the Lexington Group, to stretch their collective imaginations.
“There were literally hundreds of decisions to be made,” said Trudeau, “about where people were going to sit, which offices would go where, what colors would be used on the walls, the tiling in the bathrooms. Our designers always gave us plenty of options, and we always worked with the goal of providing an attractive environment for employees and customers.”
Outside, the company has removed the Oaks’ Greek-inspired look — complete with columns and decorative concrete lions — and put in a new entrance and new signage. Meanwhile, large stretches of asphalt have been torn up and replaced with green spaces, including a vegetable garden to be tended by employees now given one more reason to eagerly await the arrival of spring.
Inside, everything in the former kitchen area has been removed, and that section is now part of the space that will be leased out. Meanwhile, the spacious former banquet area, capable of sitting some 400 people, has been apportioned and outfitted to maximize efficiency and customer service, said Trudeau, while also providing a comfortable work area that addresses current trends in the modern workplace.
This includes everything from ergonomics and ‘green’ design elements to the colors on the walls (earth tones chosen to enhance livability and productivity) to the gym, which is in keeping with a company-wide focus on improving employee health and well-being.
Indeed, when BusinessWest last visited ICNE’s Park Street facility, it was to hear about a comprehensive initiative — now part of the culture at the company — that involved everything from smoking-cessation efforts to an organized walking program to an ever-present bowl of fruit in the company’s kitchen.
The fruit is still available in what is now a larger kitchen, the smoking-cessation program continues to draw results, and the walks still happen, except now along a more-rural stretch with fewer traffic issues. But soon, the employees will have a workout area that Trudeau says is part of a larger campaign for ICNE to essentially practice what it preaches to its clients — that good employee health promotes greater productivity and also lowers the cost of insuring a workforce.
The gym is still a work in progress, with pieces of equipment still arriving, but it is expected to be fully ready for use in a few weeks, said Trudeau, who counts himself among those who will be regular users.
And while getting into the business of operating a gym, sort of, ICNE is venturing into the real-estate sector as well, and is already marketing, in a quiet way, its available square footage.
Trudeau told BusinessWest that there are positives and negatives to being a landlord with space available at this time. The economy, while improved, is still in a recovery mode, he explained, adding that many business owners and managers are still being cautious about undertaking moves and expansions.
At the same time, though, many businesses that have been hunkering down for a years while the recession played itself out are now in a growth mode, and there is some pent-up demand for quality space. There is abundant supply for that demand, Trudeau acknowledged, adding quickly that ICNE believes it has the right product in the right place at the right time.
“There is a lot of office-space inventory on the market right now,” he acknowledged. “But this is a good location and attractive space; there are some good opportunities here.”

Room for Improvement
ICNE has slated an open house to showcase its new home on March 31.
By then, the large snowbanks now partially obscuring the view from Suffield Street will be gone or much lower in stature (one can only hope), and the gym will be fully outfitted.
There won’t be anything growing in the garden at that time, but the company didn’t want to wait until summer to show what it had done with its blank canvas, said Dave Florian, who is obviously proud of the way it’s been filled in.
“It took some imagination,” he said, looking at the building from the parking lot, “but we had plenty of that to work with.”

George O’Brien can be reached at [email protected]

Through the Roof

By
Kevin Ross
Sections Supplements
What’s Covered — and What’s Not — When Bad Weather Strikes

Kevin Ross

Kevin Ross says a basic policy will cover most homeowners’ insurance needs, but that’s not always the case.


An ice-covered tree branch fell through your roof? It’s OK; your insurance will cover it. An ice dam caused water to back up under the shingles and seep into your kitchen? Again, no problem. Rapidly melting snow is turning your whole basement into a kiddie pool? Uh-oh.
As the region emerges (hopefully) from what has been an unusually rough season of winter weather, the rapid pileup of snow and ice has caused often-significant damage to many area homes. Fortunately, most of it is covered by the typical homeowner’s insurance policy. But there are some significant exceptions.
When it comes to collapsed or otherwise damaged roofs and siding, as well as water damage caused by damming ice in the gutters, “the loss, the damage to the walls, the drying out and replacement of the insulation, repainting — all that is covered,” said William Grinnell, president of Webber & Grinnell Insurance in Northampton.
In addition, “some companies will also cover a ceratin amount to remove additional snow from the roof — usually just around the affected area, not the whole roof, if you’ve sustained some damage from water already,” he added.
According to the Property Casualty Insurers Assoc. of America (PCI), property insurance is likely to cover some — though not all — damages caused by snow, ice, and wind.
For example, damage to a house caused by a falling tree or branch is covered. Typically, the policy also covers the cost of removing the tree or branch from the house. If a tree in one person’s yard causes damage to a neighbor’s house, the neighbor should file a claim with his own insurance company.
“A winter storm of this magnitude can cause significant damage, and insurers are ready to work with home and auto owners to minimize problems and help make the claims process go as smoothly as possible,” writes Paul Blume, senior vice president of state government relations for PCI.
“In an extremely heavy ice or snowstorm,” he adds, “it is possible for the weight of the ice, snow, or sleet to cause tree branches to break and damage a roof. If that were to occur, the damage to the personal property would be covered. We encourage property owners to report their claims as soon as possible to begin the recovery process.”

Tough Sledding
After a January peppered with snowstorms — with very little of the accumulation having melted — February dawned in the Pioneer Valley with a one-two punch: another foot of snow, followed by ice. It was too much for some roofs, many of which collapsed throughout the region.
A standard homeowner’s policy pays for roof repairs or replacement if the structure caves in due to the weight of the snow and ice, and also covers the loss of any items inside the house damaged or destroyed by the collapse, said Kevin Ross, vice president of Ross Insurance Agency in Holyoke. The exception would be expensive fine arts or collectibles, which are typically covered under their own policy anyway.
But roof damage, while potentially severe when it happens, has not been the region’s top weather threat this year.
“The foremost problem this winter is the ice-dam situation,” Ross said. “That’s where ice builds up in the gutters, and as water melts on the roof, it comes down but has nowhere to go, so it leeches up into the shingles of the house.” That can cause mild to severe damage inside the home, he added, but insurance typically covers it.
Timm Marini, president of FieldEddy Insurance in East Longmeadow, said coverage trends have shifted over time; for example, interior water seepage due to an ice dam was not usually covered 15 years ago, but now it’s standard. And although insurance companies will sometimes alter their coverage patterns for financial reasons (after taking large or concentrated losses), he doesn’t expect any change in the current protection against ice dams.
“Now everyone’s worried that next year we’ll have a drastic change in policies” because of a spike in ice-dam-related claims in 2011, he noted. “I’m saying no. This is a catastrophic event for our area, and there’s going to be some relief available through the federal government. But, though policyholders might see an increase in the cost of their premiums over time, the availability of that type of coverage will not go away unless we have multiple years of this stuff.”
If a home loses power during a storm event and is rendered unlivable for any significant time, Ross said, any loss of income from a home business or rental income would be covered by a typical policy as well.
According to the PCI, the various impacts of storm-related power outages are handled in different ways. For example, loss of refrigerated food caused by a power failure that originates away from the residence is generally not covered. However, the homeowner’s policy may reimburse an individual for additional living expenses — such as temporary housing, restaurant meals, overnight parking, and laundry services — when the property is determined to be uninhabitable due to damage or loss of power.

Out of Luck
So, what’s not covered when it comes to weather damage?
For one thing, the PCI reports, damage to trees, shrubbery, and other plants during a storm is not covered under a standard policy. If a tree or branch falls but doesn’t damage any structure, there’s usually no coverage for removing the tree or branch.
More serious is the potential for thickly accumulated snow to thaw quickly and seep into the basement. The agency executives we spoke to agreed this is not covered — even if the homeowner has purchased separate flood insurance, which applies to a widespread event, not a single home.
“A flood is defined as, you’re underwater, and your neighborhood is underwater; it’s not just water that runs into your basement,” Ross said.
And when it comes to wind and rain damage, a little common sense comes into play, too, Grinnell said. “If a windstorm comes and strips the shingles off, what comes in the house is covered. On the other hand, if a storm comes blowing through an open window, that damage would not be covered.”
And as the spring thaw turns into summer, Ross said, homeowners would be well-advised to take the lessons of the past two months and inspect their homes for any needed repairs before the next harsh winter.
“I strongly encourage everyone to make sure their gutters are working properly and directing water away from the foundations,” he said. “It’s a very small fix, but it can save you a lot of heartache.”

Joseph Bednar can be reached at [email protected]

HIRE Ground

By
Kristina Drzal-Houghton
Sections Supplements
Understanding Tax Credits for Those Who Hire Eligible Employees

Kristen Houghton

Kristen Houghton

By KRIS HOUGHTON

In today’s tough economy, every dollar counts. But many businesses lose out on thousands of dollars in tax savings every year by failing to claim tax credits to which they’re entitled.
For 2010 and 2011, two credits are available for employers who hire eligible employees. The Hiring Incentives to Restore Employment (HIRE) Act of March 2010 offers payroll tax breaks for employers that hire unemployed workers, plus additional credits for qualified workers they retain for at least 52 consecutive weeks. This article looks at the HIRE credit and examines whether this benefit is more advantageous than the often-overlooked Work Opportunity Tax Credit (WOTC).
Back in March, health care reform grabbed most of the headlines, but it wasn’t the only legislation enacted that month. About a week earlier, President Obama signed the HIRE Act. An employee qualifies for payroll-tax breaks if he or she:
• Starts work after Feb. 3, 2010, and before Jan. 1, 2011;
• Wasn’t employed for more than 40 hours during the 60-day period before the start date (and signs an affidavit to that effect);
• Doesn’t replace an existing employee (except one who quits voluntarily or is fired for cause); and
• Isn’t related to the employer or to an individual who owns more than 50% of the business.
Qualified employees include previously laid-off workers that you rehire, provided they meet the above requirements. Employment can be full-time or part-time, but the more hours a qualified employee works, the greater the benefits.
If you hire qualified employees, you’re exempt from the 6.2% Social Security portion of Federal Insurance Contributions Act (FICA) taxes on wages you pay them for work performed after the HIRE act was enacted (March 18, 2010) through the end of 2010. Based on the current Social Security taxable wage base of $106,800, the maximum tax benefit is $6,622 per qualified employee.
For each employee qualifying for the payroll tax break whom you keep on the payroll for at least 52 consecutive weeks, you’re entitled to a tax credit of up to $1,000 on your 2011 income-tax return. To qualify for the credit, an employee’s wages for the second half of the 52-week period must be at least 80% of his or her wages for the first half of the period. Even if a new hire leaves voluntarily before 52 consecutive weeks are up, no retention credit is received for that hire.
To prevent employers from claiming the full $1,000 credit for employees who do minimal part-time work, the amount of the credit is the lesser of $1,000 or 6.2% of a qualified employee’s wages during the 52-week period. Put another way, new hires who earn more than $16,129 during that period qualify for the full $1,000 credit.
Now let’s look at the rules for the WOTC, which is a dollar-for-dollar reduction in federal tax liability — ranging from $1,200 to $9,000 per new hire — for companies that hire people from disadvantaged groups, including certain youth, public-assistance recipients, and veterans.
The credit’s requirements are detailed and specific. Generally, new hires who belong to one of these groups qualify:
• Short- and long-term recipients of Temporary Assistance for Needy Families (TANF) benefits;
• Veterans who are disabled or unemployed, or receive food stamps;
• Ex-felons hired within one year after conviction or release from prison;
• Individuals age 18 to 39 who live in empowerment zones, enterprise communities, or renewal communities (‘designated communities’);
• Disabled individuals referred after completion of a qualified vocational rehabilitation program;
• Summer youth employees age 16 or 17 who live in designated communities and work at least 90 days between May 1 and Sept. 15;
• Individuals age 18 to 39 who receive food stamps;
• Individuals receiving Supplemental Security Income (SSI) benefits; and
• ‘Disconnected youths’ ages 16 to 24 who aren’t in school, employed, or readily employable due to a lack of basic skills.
Each target group is subject to specific requirements, so it’s important to do your homework to see whether any of your new hires qualify.
Generally, the credit reduces the employer’s wage deduction dollar-for-dollar. The reduction is required even if you can’t take the full amount of the credit in the current year and must carry it back or forward.
For long-term TANF recipients, the maximum credit is 40% of first-year wages up to $10,000 (a $4,000 credit), plus 50% of second-year wages up to $10,000 (a $5,000 credit, so there’s a maximum credit of $9,000 over a two-year period). Formerly known as the welfare-to-work credit, this credit was combined with the WOTC a few years ago.
The maximum WOTC is available for employees who work 400 hours or more during their first year of employment. A partial credit equal to 25% of qualifying wages is available for those who work between 120 and 399 hours.
To obtain the WOTC, you first need to complete and file various federal forms when hiring a qualifying employee. Once the employee has worked the required number of hours, you can claim the credit on your company’s next income-tax return. You also may be eligible for state credits or other incentives. Your tax advisor can help guide you through the process. Although it’s complicated, the tax savings can be well worth the effort.
Wages you pay to a worker who qualifies for the HIRE Act’s payroll-tax exemption don’t qualify for the Work Opportunity Tax Credit unless you elect not to claim the payroll-tax exemption. So it’s important to select the tax break that provides the greater benefit.
For some new employees, the WOTC will provide a greater benefit than the HIRE act’s payroll-tax exemption. Suppose, for example, that you hire a new employee on July 1, 2010, at an annual salary of $50,000, and the employee qualifies for both tax breaks. The payroll tax exemption would provide tax savings of $25,000 × 6.2%, or $1,550. In this case, you’d be better off opting out and claiming the $2,400 WOTC.

Kristina Drzal-Houghton, CPA MST is the partner in charge of Taxation at Holyoke-based Meyers Brothers Kalicka, P.C.: (413) 536-8510.

College Try

By
College Try
Sections Supplements
Job Outlook Brightens for Graduates … Who Have Planned Ahead

College Try

College Try

In decades past, getting a good job was often a matter of choosing a hot career field and getting into a well-regarded college program, and offers would follow. But in recent years, amid a crushing recession, new graduates have encountered a far more competitive job market. Prospects seem to be improving for the class of 2011, however — especially graduates who have paved their path with a steady diet of work experience while in college.

College used to be a time to prepare for the work world. These days, the lines between the two have been blurred, with work experience becoming a more prominent part of one’s education.
And those who graduate without that experience are finding themselves at risk to a greater degree than ever before.
“It’s become more competitive,” said Deborah Pace, director for Employer Relations at Western New England College, “and if an employer looks at a student with a business background who interned for a semester or two, and then one who didn’t, and they both interview well and present themselves well, more than likely they’re going to hire the student who did the internship.”
Internships are nothing new, but they’re an especially hot topic today, as a still-tight job market has allowed employers to be choosier with applicants, and they’re increasingly focusing on the volume and quality of work experience a college student has amassed before donning that cap and gown.
“Multiple internships are becoming very important now,” said Nicholas Wegman, executive director of the Chase Career Center at UMass Amherst. “It used to be that having an internship would get you an edge; now, it’s almost assumed that business students will have an internship, and the buzzword is multiple internships.
“There are lots of opportunities for experiential learning — doing a project for a small business or going out to a manufacturing site or a distribution center, or doing Web-based projects, interactive marketing, or social-media marketing,” he added. “These are things you can reference on your résumé and that give you something positive to say in an interview.”
Most observers of the employment landscape say things are looking up for the class of 2011, at least compared to the past two years. But progress in the marketplace has been gradual, and the recession has in some ways forged a new reality: yes, jobs might be available for new graduates, but the days of taking them for granted are, at least for now, a thing of the past.
First, the good news: even amid the persistent stagnancy of the job market, this year’s college graduates seem to have more options than last spring’s crop. According to the Job Outlook 2011 survey conducted by the National Assoc. of Colleges and Employers (NACE) last fall, companies anticipate hiring 13.5% more new college graduates from the class of 2011 than they hired from the class of 2010.
However, the improved expectations are not across the board; in fact, only 48% of responding employers expect to increase hiring at all. Meanwhile, 40% plan to maintain last year’s pace of hiring new graduates, and 12% anticipate reducing hiring among this age group. The odds of landing a job vary by region of the U.S., too; according to NACE, Pace pointed out, the Midwest promises to be more fertile ground than the Northeast when it comes to hiring graduates.

Pamela White

Pamela White says she has seen interest in internships rise over the past few years, among both students and employers.

“I think it’s going to be challenging,” said Pamela White, director of Cooperative Education, Career Services, and Transfer Affairs at Springfield Technical Community College. “For some fields, it seems to be a little better. Obviously, in health care there always seem to be more opportunities, but even in that field we’ve seen some challenges.”
For this issue, BusinessWest gazes upon the landscape being contemplated by the collegiate class of 2011, why there’s reason for optimism, but also why students who have not adequately trained for their future might be nervous about what awaits them this spring.

Looking Up
The Chase Career Center, as a department of the Eisenberg School of Management at UMass, serves about 3,400 undergraduate students in various business fields, from accounting and finance to management and marketing, so Wegman has the pulse of a variety of fields — and he likes what he hears.
“The indications I have are that the market is going to be a little better than it was last year, and certainly much better than it was the year before that,” he told BusinessWest. But there’s a caveat, one that can be frustrating for students anxious to line up jobs for the spring.
“I think the market is developing a little later,” he said, explaining that, in the past, recruiters would descend upon campus early each school year, in the fall, because competition for top students was high, and they wanted to get offers out as soon as possible. Now, companies are waiting until the spring, in many cases, because they don’t want to commit to new staff seven or eight months out, with their own balance sheets in flux due to an uncertain economy.
“When so many offers were made in the fall,” Wegman continued, “there was an expectation — even a little subtle pressure — for those students to commit. Their parents liked it, and the companies liked it. Now, they’re cycling back and making job offers more closely aligned to their market situation. They’re not as anxious to make offers in the fall.”
Pace — who regularly tracks information from NACE, and has also been involved in many job fairs, including last fall’s regional College 2 Career Expo — sees a mixed picture for graduates.
“We had about 50 employers [at the expo], and they were looking for students with all backgrounds — arts and sciences, business and engineering majors. And jobs are still available. But in the Knowledge Corridor, we’ve seen some decreases.”
She pointed to population growth in Massachusetts that has trailed behind other states, and anecdotal evidence, such as fewer companies participating in local chamber of commerce breakfasts, as signs that graduates may have to set their sights on other regions of the country where business is expanding more rapidly. But some fields remain strong in Massachusetts. She told of an accounting student who began doing projects for a local firm before graduation, and recently received an attractive job offer.
“They weren’t going to let him get away,” Pace said. “If you have an accounting or financial background, a good GPA, and excellent interviewing skills, they’re going to scoop you right up. Those graduates are still in high demand.”

Test Drive
But in that case and so many others, gaining real-world experience is key — moreso, perhaps, than ever before, White said, as employers seek to test-drive potential employees before making a commitment. Of course, internships also benefit companies in the short term.
“Many have some projects that need to be completed,” she noted, “but they don’t have funds in the budget to hire someone, so they’re seeking out college students to help fill that gap.
“I’ve seen a real increase in students seeking out internship opportunities,” she added. “More and more employers have been requesting interns than in the past. Given our population [at a two-year college], the majority of students are either working or need to work, and they’re receptive to the idea. I’ve had more and more students coming through who want to find internships, just to have that competitive edge, something on the résumé. They clearly understand the level of competition right now, and they’re doing what it takes to get experience.”
Pace agreed that internships have become more prominent over the past three years or so. “Definitely, employers would like to see internships on students’ résumés, and then be able to talk about that experience,” she told BusinessWest.
And for most students, she noted, getting that sort of experience shouldn’t be too difficult. “There are more than enough employers in the region for students to do internships.”
Given the opportunities available, Wegman says today’s business students are encouraged to start building a portfolio of these work-related experiences, transferable skills, and leadership roles starting freshman year — and they’re arriving on campus willing to do just that.
“We are finding that students are more invested, more interested” in their long-term outlook, he said, and parental encouragement to set career goals early and work hard to reach them seems to be a factor.
“They’re thinking about internships earlier, understanding some of the language of corporate America earlier, interacting with recruiters and companies earlier,” Wegman added. “They know they have to do that; it’s not such a big surprise to them anymore. And we’re trying to get our students involved with corporate recruiters and business representatives, and into internships, from their freshman and sophomore years.”

Attitude Adjustment
Considering the challenges they’re facing in a somewhat reordered economy, Pace was frank about the fact that many Millennials, the generation that includes the class of 2011, need an attitude adjustment before entering the work world, having grown up hearing stories of Silicon Valley employees kicking back at work in pajamas and slippers.
“Most industries aren’t like that,” she laughed. “Companies expect you to show up on time, fully clothed with a nice suit, with a service-minded attitude.”
What does that have to do with graduates’ employment outlook? Simply put, perceptions of this generation as entitled and transitory — earned or not — could be suppressing the number of entry-level jobs available to them.
“Some companies are hiring older people because they know they come to work on time and respect the workplace,” Pace said. “They know younger people take a job for a year and leave — they job-hop; they don’t want the onus of staying on a job for at least five years. That creates problems for employers, who need to spend money recruiting and then retrain and acclimate a new employee to the company.”
That presents opportunities for applicants who are able to project the right combination of maturity and experience, regardless of their age, and often community-college students fit that mold, STCC’s White said.
“We think our students are really qualified and able to compete for a lot of opportunities with people at four-year colleges,” she argued. “Employers know that these students are just as able to compete one-on-one with other students at four-year schools.”
For graduates with an adventurous streak, Pace said, the world of entrepreneurship holds promise, although their path carries more risk. Western Mass. has long boasted a strong tradition of business startups, and uncertainty in the employment market may be persuading some to create their own jobs.
“Here at Western New England College, that’s built into the curriculum — doing a business plan,” she said. “A lot of students say they want to get a business degree, then start their own business after they graduate, especially if the startup costs are low.”
But that general feeling of uncertainty in the job market may be lifting just a bit. Wegman has noticed a little more restlessness in his school’s graduate students after a few years in which workers not satisfied with their careers have often been unwilling to make a move and sacrifice their current job security.
“My sense now is that, after several years of being static, people are re-energized about making a change of company, or retool and move up, as opposed to the sense that, ‘this is a good job; I should stay focused on this.’”
And so the employment cycle continues — upward, by most accounts. But just in case, it wouldn’t hurt to pad that résumé a little more.

Joseph Bednar can be reached at [email protected]

IRS Form 1099 Explained

By
Bruce Fogel
Sections Supplements
Know the Requirements in Order to Remain in Compliance

Bruce Fogel

Bruce Fogel

Many of us, at one time or another, have seen an IRS form titled 1099. Most of us are familiar with the more common versions of that form, including:
• Form 1099-INT, which is used to report interest paid to someone in excess of $10 per year;
• Form 1099-DIV, which is used to record dividends and/or capital-gains distributions paid to someone in excess of $10 per year;
• Form 1099-B, which is used to report the proceeds from the sale of capital assets other than real estate; and
• Form 1099-S, which is used to report the proceeds from the sale of real estate, typically other than one’s principal residence (provided the appropriate information was provided to your lawyer or other representative at the time of sale).
In each of these instances, the purpose of a Form 1099 — whatever its specific designation — is to provide information to the Internal Revenue Service so it can cross-check the same to make sure that the recipient is properly reporting the payment and/or income.
Another type of Form 1099 is the Form 1099-MISC. As you might have already guessed, this designation is intended to cover most other miscellaneous payments for which a specifically identified Form 1099 does not exist. The threshold for being required to file such a form is when payments have been made to a qualifying recipient during any calendar year (or tax year, in the case of an entity reporting information on a fiscal-year basis), in an amount totaling at least $600.
So, who is required to submit such forms to the IRS and to the payee? Anyone or any entity engaged in a trade or business, who made such payments in the course of that enterprise, is required to use 1099-MISC. But, you may wonder, what constitutes a trade or business? The instructions for this form state that you are generally considered to be engaged in a trade or business “if you operate for gain or profit.”
However, as with most IRS guidelines, the answer has exceptions. For example, those parties responsible for filing this version of Form 1099 include nonprofit organizations as well as federal, state, and local governments. Interestingly enough, through Dec. 31, 2010, the definition did not include landlords or rental-property owners. However, effective with payments beginning Jan. 1, 2011, landlords are required to join in the fun and issue Form 1099-MISC for all payments for services and/or materials reaching the $600 filing threshold.
The next logical question is, to whom or to which organizations are these forms issued? Historically, and through Dec. 31, 2010, these forms were to be issued to any individual and/or non-corporation receiving $600 or more during the year. Most corporations were excluded. However, payments were still required to be reported on the form if paid to pass-through entities, including LLCs that were not being taxed at the entity level, as well as payments made for professional fees (including doctors, lawyers, etc.), whether the professional entity was incorporated or not. However, these rules were changed for payments made after Dec. 31, 2010, such that corporations are no longer exempted from receiving these forms.
As you might expect, there are penalties for non-compliance, and not having the information necessary to complete the form is not always considered to be a valid excuse. There are also filing deadlines, other forms necessary to accompany copies of the Form 1099 to be filed with the IRS, and additional form-specific details relating to the filing requirements.
Suffice it to say, if you are subject to the filing requirements for these forms or think you might be, it is certainly better to err on the side of caution and make arrangements for their filing, or at least to check with your tax or accounting professional. Under such circumstances, it would be wise for you to take steps during the year to make sure to collect the necessary information you’ll need to file these forms from the various payees you work with. Such information would include their full and correct name, their correct tax-identification number, and their correct and current mailing address.
If necessary, there are forms available for collecting such information and receiving the payee’s certification as to the accuracy of the information.

Bruce M. Fogel is a partner with Bacon Wilson, P.C./Morse & Sacks in Northampton. He is a member of the firm’s estate-planning, elder, real-estate, and business departments. He has extensive experience in matters relating to income, gift, and estate taxes, and he focuses on the tax implications of all legal transactions. He can also be heard on the radio show Taxes and Assets; (413) 584-1287; [email protected]

For the Record

By
Sections Supplements
New CORI Measure Impacts Employers’ Hiring Processes

Amy Royal

Amy Royal

Prior to hiring a prospective employee, many businesses opt to conduct background checks, some of which include checks into an applicant’s criminal history. Indeed, obtaining information about an applicant’s criminal records and general background can be quite helpful for verifying the veracity of an applicant and in learning more information about an individual who is otherwise an unknown commodity.
The ways in which businesses can obtain and use criminal-offender record information (CORI) during the hiring process was limited by the state’s CORI-reform law, which Gov. Deval Patrick signed into law last summer. CORI records include information and data related to the nature and disposition of a criminal charge, arrest, pre-trial and other judicial proceedings, sentencing, incarceration, rehabilitation, or release.
The impetus for the new law was to make it easier for individuals to secure employment. In fact, in supporting the law, Patrick announced that “the best way to break the cycle of recidivism is to make it possible for people to get a job.” The first piece of the new CORI law went into effect on Nov. 4, 2010; other sections will not take effect until early next year.
Under the portion of the CORI law that took effect last November, it became unlawful for employers to ask job applicants about their criminal-offender record information, including information about arrests, criminal charges, and incarceration, on an “initial written application.”
Benjamin Bristol

Benjamin Bristol

The new CORI law created this prohibition by amending Mass. General Laws Chapter 151B, Section 4, our state’s anti-discrimination law. Before this new amendment, employers could ask job applicants about felony convictions and certain misdemeanor convictions that were not protected from disclosure. The only exceptions to the conviction-question ban on initial job applications occur when federal or state law disqualifies an applicant for that position because of a conviction or where an employer is subject to an obligation under federal or state law not to employ an individual who has been convicted.
Unfortunately, the term ‘initial written application’ was not defined in the new law, so it remains unclear whether the new CORI law was intended to prohibit job interviewers from asking about criminal-offender record information later on in the application process, such as during an interview. The Mass. Commission Against Discrimination (MCAD), the state administrative agency that enforces our state’s anti-discrimination law, has taken the position that a job interviewer may inquire about convictions in very limited circumstances. Indeed, the MCAD has indicated that questions about convictions are permissible as long as the interviewer does not ask about any of the following:
• An arrest that did not result in a conviction;
• A criminal detention or disposition that did not result in a conviction;
• A first conviction for any of the following misdemeanors: drunkenness, simple assault, speeding, minor traffic violations, affray, or disturbance of the peace;
• A conviction for a misdemeanor where the date of the conviction predates the inquiry by more than five years; and
• Sealed records and juvenile offenses.
Without question, this list presents more problems than it does solutions for employers. Since interviews usually consist of broad and open-ended questions, it is very likely that the interviewer who asks about an applicant’s past convictions will erroneously lead the applicant to disclose conduct that the MCAD deems protected, which could ultimately result in litigation. This is true even if a question is well-intentioned; it could still be seen as a violation.
To avoid this problem, employers should train their interviewers on the proper questions to ask applicants, and provide their interviewers with a written set of questions to help steer the discussion away from unlawful inquiries.
In addition to the initial-application piece of the new law, another provision, slated to take effect on Feb. 6, 2012, will further restrict an employer’s ability to obtain criminal conviction history. While employers will still be able to obtain criminal information from the CORI database, they will no longer be able to receive felony convictions that have been closed for more than 10 years or misdemeanor convictions that have been closed for more than five years. Currently, employers may receive information about felony convictions occurring up to 15 years earlier and misdemeanor convictions occurring up to 10 years earlier.
Another provision that takes effect on Feb. 6, 2012 will require employers to create and implement a written policy if the employer annually conducts more than four criminal background investigations. This written policy must include language notifying applicants of the following: that the employer will give copies of the policy and the information obtained during the criminal background investigation to the applicant; that there is a potential for an adverse decision based on the criminal background investigation; and the steps applicants can take to correct their criminal record. Employers must then make sure that the applicant receives a copy of the policy and the information obtained during the investigation.
Also effective Feb. 6, 2012, the new law will prohibit employers from retaining a terminated employee’s CORI information for more than seven years from the last day of employment. The same rule will also apply to job applicants; thus, employers will be prohibited from retaining an unsuccessful applicant’s information for more than seven years from the date of the decision not to hire.
However, Feb. 6, 2012 will bring some good news for employers. Specifically, under another section that takes effect that day, the new law will protect employers from claims of negligent hiring when relying solely on CORI records and not conducting additional criminal background checks prior to hiring an applicant. This provision will also protect employers who fail to hire an applicant because of erroneous information on the applicant’s CORI.
In this ever-increasingly litigious society, employers should routinely gather all available information regarding a prospective employee before deciding whether or not to hire them. In light of the new CORI law, employers who are currently using criminal-record information in their hiring process should review their current policies and practices to ensure compliance with the new law.

Amy B. Royal, Esq. and Benjamin A. Bristol, Esq. specialize exclusively in management-side labor and employment law at Royal LLP, a woman-owned, boutique, management-side labor- and employment-law firm; (413) 586-2288; [email protected]

Mistakes That Make a Litigator’s Day

By
Carol Cioe Klyman
Sections Supplements
How to Avoid Turning Private Estate Matters into Public Conflicts

Carol Cioe Klyman

Carol Cioe Klyman

Litigators love conflict.
In the world of trust and estates litigation, an innocent transaction, such as adding a child’s name to a bank account, could set the stage for a legal battle royal after the parent’s death.
Consider the questions mom will not be around to answer. Did she put Johnny’s name on her account because she wanted him to be able to withdraw funds while she was living, or rather to inherit the account when she died? Or did she intend to give Johnny access to the money just in case something happened to her, but she really wanted all her children to split the account when she died?
The siblings never got along that well, but think about what could happen in this family when mom is no longer around to referee.
Walk into most courthouses these days, and you will soon realize that ambiguity and conflict mean money. Trust and estates litigation is booming in no small part because the innocent transactions of life conflict with family dynamics and the complex realities of the legal system. Litigators sue, but estate-planning attorneys try their best to keep clients out of court. So here, from my observations, files, and trials, and those of my colleagues, are some of the mistakes that can drive what should be private matters into public conflict.
1. DIY estate planning. Filling out forms from the Internet for wills, trusts, and powers of attorney is the easy part. Thinking through the ramifications of those documents takes knowledge and skill. Most people plan one or two generations ahead, but life is not that simple.
Divorce, biology, human frailty, and the simple passage of time all affect our planning. It also takes knowledge to separate the useful from the flawed in these Internet documents. Litigators will exploit ambiguities and unintended consequences.
2. Not having a will, power of attorney, and health care proxy. If you don’t have these basic documents, the government controls where your property goes and monitors who makes decisions about your health care and your funds. If you become incapacitated, a judge will appoint a guardian and conservator to take care of your financial and medical affairs. Families often disagree over who will serve in these roles, and these conflicts often end up in court. These cases can be brutal, costly, and time-consuming.
The judge, usually the person in the room who knows the least about your case, is confronted with choosing between children, as often as not appointing a professional who is a stranger to the family.
3. The law of unintended consequences. Even people who have estate plans can fail to consider the consequences. In one glaring example that came across my desk some years ago, a man terminally ill with cancer thought he had provided for his adult children in his will, signed six months before his death. The will left everything to his second wife, whom he had married two years previously, and then to his five children if she were dead. When he died, his wife inherited his entire estate, and his children got nothing.
His children sued. The case settled with the widow agreeing to give them their father’s property at her death. Many such cases end only after protracted and expensive litigation that leaves the children empty-handed.
4. “My child will do the right thing.” I can’t tell you how many times a client has told me, “I’m leaving everything to my daughter. She knows what I want.” The law favors certainty over sentiment. The certainty is, the daughter owns everything at the parent’s death. Fortunately, in most cases, the child will do the right thing when a parent dies. However, at times the ‘right thing’ is unclear.
The person in charge may believe she knows exactly what the deceased person wanted. Others may disagree, and even resent the authority given to the favored person.
5. Promising more than you deliver. Many lawsuits are won and lost over the issue of a promised inheritance that failed to materialize. In many of these cases, the neglected survivor performed an uncompensated service expecting to be rewarded later. In one recent case, a son was promised he would inherit the family business and real estate if he ‘employed’ his mother at a substantial salary and paid her living expenses.
He faithfully performed his obligations until her death. Unfortunately for the son, the mother changed her estate plan in the intervening years and split the business among her children when she died. The dutiful son sued his siblings and won. The sympathetic judge found that the son acted based on his mother’s promise and should be compensated for his trouble.
6. Picking the wrong person to be in charge. A corollary to this is, “Sheila is the oldest, so I’ll name her.” Much sadness, loss, and many expensive lawsuits arise from this mistake. An executor of a will, trustee of a trust, and agent with power of attorney or health care authority — each of these jobs requires a person of intelligence, honor, loyalty, and diligence. Putting the wrong person in charge can completely derail a perfectly crafted estate plan.
Individuals abuse the trust placed in them when they use funds for their own purposes, contradict their principal’s instructions, or fail to follow the directions expressed in the decedent’s will. These cases run the gamut: a grandmother serving as executor of her daughter’s will spent her grandchildren’s inheritance on herself; an agent transferred property owned by her incapacitated mother to herself without permission; an executor used estate funds to repair and improve his own home. Often the people who are wronged — an incapacitated person, trust beneficiaries, a decedent’s heirs — have the law on their side but cannot recover what was lost or taken. The wrongs can occur many years before discovery, and perpetrators often are poor and ‘judgment-proof,’ and not required by the court to have insurance to cover losses.
7. Dueling powers of attorneys. When a parent cannot choose which child to put in charge, they sometimes put too many children in charge. They will sign a power of attorney naming one child, a second power of attorney (sometimes drafted by a different lawyer) naming another child, and so forth. The question then becomes, who is really in charge?
If the parent is incapacitated, unable to pick the first among equals, and the children can’t agree, the decision will end up in court. My advice is to say what you mean in one document only, and don’t let your children bully you into creating another. If you can’t pick one and then another as backup, you can name two serving together, but it is best for an odd number to serve in case a tiebreaker is needed. You might also spread the jobs of executor, attorney-in-fact, and health care agent among your trusted family members so no one feels slighted.
8. Failing to name successor executors, agents, and trustees. If an office is vacant, the court may need to appoint an individual or corporation to serve. Refer to points 2, 3, 5, and 6 for the ramifications.
9. Not specifying how taxes are paid when you die. If you leave assets of more than $1 million, Massachusetts will tax your estate (more than $5 million, and the federal government is also interested). Unless you decide differently, taxes are paid from general probate assets, which do not include specific assets bequeathed in a will, insurance policies, annuities, retirement accounts, and other assets with beneficiaries. The result could be that the people you want to benefit the most will pay all the taxes and receive the least.
10. Specifying that taxes be paid from tax-exempt assets. Some assets transferred at death, such as gifts to charity or to a trust for a surviving spouse, are exempt from estate tax and can actually result in reduced taxes for an estate. However, an improperly drafted estate plan can cause a portion of these exempt assets to be spent on estate taxes, reducing the amount of the exempt gift, and in turn increasing the taxable estate and the tax bill — a mathematical spiral that often ends in court. Charities, marital trust beneficiaries, and litigators can do the math.
11. The ostrich estate plan. Pretending problems don’t exist, and not meeting them head-on, is a gift that keeps on giving to a litigator. A parent may disinherit a child or children for any reason, sometimes out of sheer dislike. Most parents can’t live with the thought of treating one child differently, even a child with substance-abuse, financial, or marriage problems, or perhaps physical or mental challenges. Failing to address these issues by sweeping them under the rug or pretending they don’t exist can be destructive to the family. With proper planning, children can be protected from themselves in many positive ways.
However, if ever your loved ones would have reason to race to their lawyer, an estate plan that singles out a child with problems, disinherits children, or leaves the entire estate to the poodle would be it. Care must be taken to evidence that the parent acted willfully and with full understanding. Plans that seem irrational or flippant leave much room for doubt and speculation — and make a litigator’s day.

Attorney Carol Cioe Klyman is a shareholder with Shatz, Schwartz and Fentin, P.C., Springfield, Northampton, and Albany, N.Y. Her practice concentrates in the areas of elder law, estate and special-needs planning, estate administration, and trusts and estates litigation. She is a fellow of the American College of Trust and Estates Counsel and immediate past president of the Hampden County Estate Planning Council; (413) 737-1131.

An Important Learning Curve

By
Sean Wandrei
Sections Supplements
Educational Tax Credits Help Defray the Costs of Higher Education

Sean Wandrei

Sean Wandrei

As most of us know, higher-education costs are climbing at a staggering pace. To provide some relief to taxpayers, there are two credits they can take advantage of on their 2010 tax returns.
This article will provide an overview of the higher-education credits available and how they may be used in tax planning and financing your student’s education.
The credit that most taxpayers take advantage of is the American Opportunity Tax Credit (AOTC), which modified and replaced the Hope Credit through 2012. The AOTC was created by the American Recovery and Reinvestment Act of 2009 and was originally available for 2009 and 2010. The recent tax-relief package, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, extended the AOTC for two years, through Dec. 31, 2012. The second credit, the Lifetime Learning Credit, has been around for many years but, as discussed below, is less advantageous than the AOTC.
Each credit is based on the amount of qualified tuition and related expenses paid for an eligible student at an eligible education institution, and is subject to income limits of the taxpayer. Qualified tuition and related expenses are defined as out-of-pocket cost for tuition and fees required for enrollment or attendance at an eligible educational institution. For the AOTC, expenses for qualified course materials may also be used to compute the credit. Cost for room and board, insurance, medical expenses, and transportation do not qualify for the credit.
There are some common elements of these education credits — a joint return must be filed by married taxpayers claiming either credit (no married-filing-separately returns), a taxpayer cannot claim a credit and also claim a deduction for those same higher-education expenses, there is no carry-forward of an unused credit, and each credit is claimed in the year the expenses are paid if the education commences during that year or during the first three months of the next year.
As stated before, the ATOC is a modification of the Hope Credit and basically replaces the Hope Credit through 2012. The credit amount is the sum of 100% of the first $2,000 of qualified tuition and related expenses plus 25% of the next $2,000 of qualified tuition and related expenses, for a total maximum credit of $2,500 per eligible student per year. The credit is available for the first four years of a student’s post-secondary education (college). Up to 40% of the credit amount (max of $1,000) is refundable should the taxpayers’ tax liability be insufficient to offset the non-refundable credit amount (max of $1,500). The credit starts to phase out ratably for taxpayers with a modified adjusted gross income (AGI) of $80,000 through $90,000 ($160,000 through $180,000 for joint filers).
The Lifetime Learning Credit is equal to 20% of the amount of qualified tuition expenses paid on the first $10,000 of tuition. The maximum credit available to the taxpayer is $2,000 per return. The Lifetime Learning Credit maximum is calculated per taxpayer and does not vary based on the number of eligible students in the taxpayer’s family, unlike the AOTC, which is per student. A student is eligible for the Lifetime Learning Credit if enrolled in one or more courses at a qualified education institution.
The Lifetime Learning Credit is phased out ratably when the taxpayer’s modified AGI reaches $50,000 through $60,000 ($100,000 through $120,000 for joint filers). The credit can be used on courses that enable the taxpayer to acquire or improve job skills rather than obtain a degree.
Taxpayers with children in college going for their undergraduate degree will most likely use the AOTC, and taxpayers going to school for their graduate degree or to acquire or improve job skills will only be able to use the Lifetime Learning Credit.
If a student is a claimed dependent of another taxpayer (mostly likely the parent), only that taxpayer (the parent and not the student) can claim an education credit for that tax year for the student’s qualified tuition and related expenses. Any qualified tuition and related expenses paid by the student who is a claimed dependent of the taxpayer can be treated as paid by that taxpayer (the parent and not the student) for the tax year in which the expenses are paid. In some cases, the cost paid by the parent is treated as paid by the student.
If parents decide to not claim the student as a dependent, the student may claim the education credit for the student’s qualified tuition and related expenses. In this situation, the student cannot claim a dependency-exemption deduction for himself, but can claim an education credit on his return. The exemption is basically forfeited by the family.
There is some tax planning that can be done through the ability to shift the education credit. The greatest tax savings are going to be seen by taxpayers with income greater than the phaseout limits mentioned above. This allows parents who cannot benefit from the education credit because their AGI is too high to shift the credit to the student (child), regardless of whether the child or parents paid the education cost. The student does need taxable income to generate enough tax liability to be able to use the education credit.
With the new ‘kiddie-tax’ provisions from 2008, the number of students subject to parents’ tax rates will likely increase. The thing to remember is that the parents will lose the dependency exemption (which does not have a phaseout through 2012) if the child claims the credit. An analysis of total tax savings will have to be done to see which route is most beneficial. Also, there is a risk that, if the student is not claimed as a dependent of the parent, then the parents’ health insurance may drop coverage of the student. Taxpayers should review their health insurance policies to make sure that this does not happen.
As you can see, there are several opportunities for families to benefit from the educational credits that are available.

Sean Wandrei is manager of the Tax Department at Meyers Brothers Kalicka, P.C. His technical concentrations are in multi-state taxation as well as real-estate entities; (413) 536-8510.

Great Time to Build

By
Center of the Sciences and Pharmacy
Sections Supplements
Low Bids Create Budget-friendly Opportunities, but for How Long?

Center of the Sciences and Pharmacy

WNEC saw its Center of the Sciences and Pharmacy go up at a budget-friendly time for those who want to build.


It’s been the bane of builders for a long time now: with demand for commercial construction down and competition fierce, they’ve been forced to bid very low to have any chance at winning jobs. That has trimmed profit margins to a bare minimum, eased only by material and labor costs that have remained suppressed as well.
All that has created a landscape of opportunity for businesses willing to take the plunge and build during a time of economic stagnancy.
“It’s still an exceptionally good time to build, and it probably has been for a year, year and a half,” said David Fontaine, president of Fontaine Brothers in Springfield. “And that trend is continuing.”
Higher education is one industry that has embraced the advantages of building when prices are low, said Fontaine, whose firm counts colleges and universities among its niches. He recently finished a new math and science building at the Berkshire School in Sheffield; “the price on that was 25% below the budget just a few years ago.
“The private colleges seem to have picked up on this,” he continued. “Last year we just finished the pharmacy school at WNEC, which benefited immensely from that market, and a dormitory at the College of the Holy Cross; they put that out to bid a year ago and benefited tremendously.”
Fontaine said some boards of trustees are looking anxiously at their own squeezed budgets, yet rationalizing that saving 25% or more on needed capital projects is a smart move in the long term. And that’s true across all regions of the state.
“We’ve competed for six or seven decent-sized schools in Eastern Mass. in the past year, and they have all come in 15%, maybe 20% below projections,” he said.
The state has been another beneficiary, seeing its federal stimulus dollars stretch further than officials had anticipated. Early last year, according to a Boston Globe report, the winning bids on 48 transportation projects had collectively come in $59 million below the $226 million that state originally estimated the work would cost. The average was 22% below contract estimates.
“It is a good time to build, no matter what sector you’re in,” said Peter Wood, director of sales and marketing at Associated Builders in South Hadley. Contractors only hope more companies realize it, creating a larger pool of projects and gradually raising bids, before a rising tide of material costs makes their outlook even more dire.

Steeling for Change
Indeed, many materials costs are beginning to rise — a good sign for the industry in the long term, but one that could pinch already-stressed builders right now, as bid prices remain flat for the time being (see related story, page 26).
Specifically, November saw significant jumps in prices for diesel fuel and copper — two key resources in construction — while weak demand for construction forced them to hold down bid prices despite the cost increases, according to the Associated General Contractors of America.
These price jumps “could be the last straw for some hard-pressed contractors,” said Ken Simonson, the association’s chief economist, in his monthly report. “With unemployment in construction running at 18.8% — double the all-industry average — any more business failures will only add to the industry’s misery.”
Then in December, prices for materials used in construction jumped 0.9% (and 5.4% for all of 2010), while price indexes for finished buildings remained flat over both time periods. Construction costs also outstripped the producer price index for finished goods, which rose 0.6% in December and 4% in 2010.
Simonson noted that prices soared at double-digit rates over the year for four key construction materials. Diesel fuel prices climbed 2.3% in December and 28% in 2010; steel-mill product prices rose 0.5% and 12.5%, respectively; copper and brass mill shape prices were up 1.3% and 12%; and prices for aluminum mill shapes rose 12% over the year, despite a 0.2% dip in December.
“Structural steel is a big-time barometer of what’s going on, and it has started to creep up in the last month,” Fontaine said. “It’s an indicator that manufacturers and suppliers can only provide a product for so long at costs that don’t make any sense. It’s changing direction, and it has to; we’ve had two years of people just giving things away. And when steel starts to climb, a lot of things follow it.”
For contractors, there is worse news to come, said Simonson, noting that, since the latest data was compiled, suppliers have announced further price increases for copper, steel, and diesel fuel. “With contractors unable to pass along the increases in the price of finished buildings, many firms could be pushed out of business,” he said.
Even as material prices rise, weak demand for construction, combined with intense competition for work, is forcing contractors to hold the line on bid prices, Simonson observed. The producer price index for new office construction actually dropped 0.8% for the year. The index for new industrial buildings was up 0.4% in 2010; for new warehouses, it rose 0.4%; and for new schools, it was up 1.3% for the year.
Other items that contributed to the December climb in material costs included lumber and plywood, architectural coatings, paint, brick and structural clay tile, and gypsum products. Prices have remained fairly stable nationally for asphalt paving mixtures and blocks, concrete products, and insulation materials, according to the association.
“Contractors have been unable to recoup these costs in what they charge,” Simonson added. “Indexes for new office, school, warehouse, and industrial buildings were virtually unchanged … over 12 months. Prices charged by concrete, roofing, electrical, and plumbing contractors showed very small movements in either direction.”
Contractors are likely to be squeezed by rising material costs and flat prices for completed projects for the foreseeable future, Simonson predicted. He forecasted that contractors would experience periods of simultaneous price spikes in multiple materials in 2011 as the U.S. and foreign economies pick up speed.
“Unfortunately,” Simonson said, “demand for construction will be erratic for months to come, worsening the price pinch that has already devastated too many firms and their workers.”

Doing What’s Necessary
In the meantime, builders and subcontractors alike continue to bear the squeeze in order to keep working, and low winning bids remain the order of the day, continuing a period of opportunities for businesses willing to invest in additions and renovations.
“The subcontractors seem to be extremely hungry, as far as doing what’s necessary to keep surviving in this market,” Wood said. “Many are more than willing to travel outside their comfort zone — from Eastern Mass., Connecticut, and the Albany area, they’re coming to the Valley.
“Contractors in the private sector have the ability to pick and choose their subcontractors, but you still want to pick the most reliable as well as the most cost-effective ones,” he continued. “We do our best to see the local subcontractors working instead of just taking the lowest bid — and the locals are giving us competitive bids, so they’re not getting shut out of the marketplace.”
Yet, with costs on the rise, the squeeze continues. The question is, when will more companies take advantage?

Joseph Bednar can be reached at [email protected]

Tools of the Trade

By
David Dietz
Sections Supplements
Builders Hone Strategic Initiatives for Weathering the Downturn

Kevin Perrier

Kevin Perrier says builders are being forced to bid at distressingly low figures if they want to keep working.

The local construction sector realistically plans for a sluggish 2011 on the heels of one of the worst years in decades. While strategies have been in place to get their businesses through this economy, many wonder how many more knocks this already-troubled industry can take. Careful oversight and rigorous planning may be a new set of tools for builders in Western Mass. and across the nation, but the recession that has brought this industry to historic lows is a redefining moment for local contractors.

When asked to describe the current state of the construction sector, Five Star Construction owner Kevin Perrier said simply, “it stinks.”
Although he went on to assess the industry in more specific terms, Perrier’s two-word assessment of this state of affairs is something everyone agrees upon. The recession has taken its toll on many industries, but with so much of the construction sector dependent on better economic footings, 2010 wasn’t a year for a solid rebound. And while Wall Street and Main Street both are feeling some measure of progressive economic activity, that doesn’t yet translate to a rosy outlook for builders in 2011.
The latest reports from industry analysts at Associated Builders and Contractors (ABC) don’t offer much in the way of better news than what contractors can see for themselves — that private construction slipped even further in the last months of 2010. The ABC’s chief economist, Anirban Basu, put a finer point on the bad news by compiling a list of no less than 10 “headwinds” he predicts will further impact the sector’s economy for the current year, including industry unemployment, increased commodities pricing, and the end of stimulus funds conspiring to bring about what he ominously called “phase two of the economic downturn.”
But while the outlook isn’t good, the builders who spoke to BusinessWest offered some hope that the techniques that have kept hammers ringing, even if the phones aren’t, will continue to be sound strategies to keep their businesses above water in 2011.
MaryBeth Bergeron, owner of Charista Construction in East Longmeadow, said that, having weathered other recessions, she has a good grip on imminent changes in the industry. “When this recession started, you intuitively knew business was slowing down and softening,” she said. “I’ve been in business 25 years, and after that much time, you recognize it.”
For some, 2010 meant a continuation of the operating strategy that they had begun using in 2009 — tightening the labor rolls to get lean and mean, and trimming as much as they could from the margins to be competitive while still keeping their trucks on site.

David Dietz

David Dietz says the current struggles of builders, and how they respond to them, are potentially career-defining experiences.

But many spoke of the necessity to move even further beyond those tactics. David Dietz, a principal with Dietz Construction in Easthampton, said that what his 50-year-old business is doing now not only keeps the business on solid footing through the recession, but has the potential to put the company in better shape on the other side of this economy.
“I remember my dad talking about recessions, and those experiences that defined him both as a businessperson and how he would work,” he said. “I think this is going to define our generation for quite a long time.”
The construction sector faces challenges that for many are unrivaled in their history. But, while their industry’s drums beat a tune of gloom, area builders say that, with some hard work, and no small amount of hope for better times ahead, construction can make it to the other side of the recession with a new set of tools.

Hammer Time
At Triple S Construction in Wilbra-ham, Tom Silva — one of those three S’s with his brother and father — said that his company opened shop in the midst of a recession in 1987. “We were just coming of age then,” he said. “It didn’t hit us as hard as this one.”
A residential remodeling and construction firm, Silva said that this facet of the industry has not recovered from the burst bubble of the recent past.
“Last year started out better than it ended,” he said. “I think homeowners were feeling a little bit better about the economy. But then things didn’t get better, in many people’s eyes. In November and December the phone stopped ringing. Right about now people are usually calling to get ready for springtime, to get estimates. But we’re not seeing that. I was at a homebuilders’ meeting last night, and I heard the same things.”
For third-generation Springfield builder John Vadnais, owner of the construction company that bears his name, the residential construction sector has basically turned away altogether from new building toward remodeling, making that already-competitive sector even tighter. He pronounced this era “a distressed state of affairs in an inflationary environment.”
Kitchen and bath rebuilds are the new norm, he added, as customers look for the most impact on the shortest price tag. People are still spending money, he said, “But there is a micromanagement to see the project thoroughly.
“This is one of the deepest recessions I’ve seen, or that I can remember as a kid,” he continued. “Today, it is so deep that people are having a hard time getting out of the negativity.”
Perrier echoed that sentiment, and added that, in order for him to stay competitive last year, margins became increasingly tighter.
“In 2010 it became apparent quickly that, if you wanted to be a player in getting projects, and to get a decent workload, you were going to be bidding at a much lower percentage,” he said.
The danger there, he continued, isn’t just in that one job, for that one builder. He called it the “snowball effect.”
“Because if you’re not low on the first job, the next time, you’re going to go a little lower, and then the person behind you goes a little lower,” he explained. “That trend continues, and by the end of last year you were seeing that in order to pick up jobs, your bid was incredibly competitive.
“It’s going to take a while to get away from that, also,” he added. “You’re not going to see people putting healthy margins on their bids for a while now. It slowly has to creep back up.”
Perrier said that his firm kept enough projects on the books to make sure that his employees were busy, and that trend will continue into this year. “Yes, it is good news that we have a good book of work,” he said, “but unfortunately we’re having to meet our budget by volume. And that’s tough on everyone. The staff is working twice as hard.”
Steve Killian, executive vice president for the Springfield branch office of construction management firm Barr & Barr, said 2010 was “not a pretty year.”
The firm handles multi-million-dollar construction for higher education, health care, and other industries with the pockets to finance $30 million projects. But budget shortfalls and low returns on stock portfolios caused many of those clients to back off or postpone significant capital improvements.
However, he tempered those dim reflections with a more positive outlook. “I believe that some of these capital projects are going to have to be built — either for life-cycle concerns of buildings, or for institutions to stay competitive,” he said. “They just have to pull the trigger.”
With pre-construction times in his echelon of the industry taking anywhere from three months to upwards of a year, he hopes that an uptick in business in the third quarter of 2010 bodes well for large projects in the months to come.
But even with the forecast of high-value and overdue projects, the construction sector faces some challenges from increased materials costs (see related story, page 30). And when construction management projects need to be estimated over a period of several months of volatile pricing, that can get tricky.
“Copper costs are rising,” said Killian, “and that will affect prices in the near future. Anything starting in the next three to six months will reflect the rise in that price.” With copper for electrical and plumbing needs — two services typically responsible for 30% to 40% of a project’s cost — that will significantly impact the price of building.
Labor rates have been flat for the construction sector, he said, adding, “normally, labor is the greater portion of costs, so it is a bit of an equalizer, but in this industry, people need to be able to hold their pricing for more than one year because of your bid. When you’ve tied into a project 18 to 24 months down the road, you pray that your suppliers hold to their numbers for that duration.”
In order to get this industry moving again, he said, a holistic approach to the economy is necessary and vital to plan on better times for construction. “The housing crisis still hurts us, significantly,” he said.
“There has to be more confidence there,” he continued. “And we need to see increased commercial lending for developers. Investors are looking far more critically at all projects to see if there will be a profit. And that’s something that has held them back. They’ve said they are hanging back, waiting for the promise of a good return. Private investment, people with that volume of money to lend, they just aren’t pulling the trigger.”

Planning Department
Killian said that there are no secret techniques, really, in how a firm like Barr & Barr gets through an economy like this. “A lot of it is keeping your overhead costs low,” he explained, “and watching the bottom line. The margins are tighter, so there’s no excess anywhere — from the office to the field.”
For some, though, the recession has led to internal reassessment of their core strengths. Bergeron said that, when she saw the economy taking a turn for the worst, she asked herself, “where do I want my company to be during those times?
“With some work,” she continued, “I knew we could position ourselves to be where business is best. And so, over the last couple of years, what we have been doing is government-funded work, meaning housing-allowance programs — like Springfield neighborhood housing services, West Springfield community development, and a number of other nonprofit developers of real estate.
“Sure, just as before, we hustle, and we really go after the work,” she continued. “We try to be where the business is. If you don’t have your eyes open as a business owner, you’re not prepared.”
There is a strong market for a builder to take advantage of the changing demographics of building projects, she added, saying, “I do think there is a lot of opportunity right now with Baby Boomers retiring. ADA compliance, ramps, grab bars, all of those things are important.”
Dietz sees this recession redefining his operation through a series of techniques to trim excess off his costs, but also as a means to streamline his operation for the future. He said that Dietz Construction owns its own gravel pit, a number of specialized pieces of machinery, and various other core investments, all to keep his bid low in a highly competitive marketplace.
“For companies that don’t have as big a foundation as we do,” he said, “I don’t see how they can be competitive.”
But rather than continued investment in the latest big-ticket construction equipment, Dietz said, “We have learned to subcontract things more cost-effectively than it might be to do it ourselves. For instance, maybe getting someone who specializes in setting curbs, getting them for the handful of days that we would need them, and not worry about a workforce trained for it. There are times when it is more beneficial to outsource.”
Such tactics not only help him get through the current economy, but are a way to increase profitability in the future.
For Perrier, that future he sees is now. He said he’s confident in his crew to have projects for the year ahead, but he isn’t one to sit back idly. “We made some changes in being more aggressive in finding work.
“Where a lot people are laying off, we hired a director of project management,” he said. “His sole job is to go out and network, market our company, and meet with architects to get our name out there. So far, that’s been working out very well.
“We took a gamble and tried to take advantage of the downturn,” he continued. “It’s a roll of the dice, but while everyone is quieting down, we said ‘let’s get out there, tell people who we are and what we can do.’”
In an unforgiving economy, and for an industry, he said, where one is always just a job away from being out of work, it’s more important than ever for builders to have the right tools for the job.

Environmentally Conscious — by Design

By
From left, Richard Klein, Peter Wells, and Mark Darnold
Sections Supplements
BDG Continues to Grow in a Competitive Landscape

From left, Richard Klein, Peter Wells, and Mark Darnold

From left, Richard Klein, Peter Wells, and Mark Darnold say doing a feasibility study of a tract of land before a project begins is cost-effective, as it gives developers valuable information about potential problems.

Northampton-based Berkshire Design Group has made its reputation — and grown its portfolio — helping clients navigate the many challenges involved with a building project, from permitting to making the best use of a parcel of land. Said one of its principals, “if a building looks good and is in character with its surroundings, instead of looking like it was forced on the land, it is usually more profitable.”

Many developers have a vision of what they want to build on a piece of property. But bringing that dream to reality, be it residential housing, a school, a park, retail space, or a bank, is a complex undertaking.
It all begins with the land and what it can accommodate. And that’s one of the reasons Berkshire Design Group, or BDG, as it’s known, stands out in a field of competitors. The group, which has an impressive and diverse portfolio of award-winning projects, was founded by landscape architects Peter Wells and Richard Klein. They have done many feasibility studies to insure that tracts are suitable for proposed projects.
It’s a step that some developers skip, which can prove costly in the end.
“We analyze sites to make sure they can accommodate what the developer wants to do on them, and isn’t always possible,” Wells said.
He explained that, if a bank is proposed for a site, the property should be evaluated for zoning and traffic requirements. If the client wants a drive-through, it triggers additional concerns, including where it will exit to the street. There are also requirements that must be met to accommodate the Americans with Disabilities Act. In addition, wetlands and rare species as well as topographical constraints play a role in determining the cost and feasibility of a project.
“Our training is in landscape architecture, and we strive to protect the land while still allowing development to continue,” said Wells. “We work with the topography, not against it. For example, if a site has varied topography, the road that runs along it will be built to blend in with the landscape.”
The firm’s portfolio is filled with a number of diverse projects. “One of the things that makes us different is that we don’t specialize in any one type of development. We have done everything you can imagine, from master planning for schools and campuses to state parks, shopping centers, malls, and all types of housing developments,” said Klein. “It is unusual for a firm to have experience with so many different types of projects.”
Another benefit, which has helped make BDG the largest and most well-known firm of its type in Western Mass., is that it offers one-stop shopping. Its services include landscape architecture, civil engineering, surveying, zoning and permitting, bidding, and overseeing construction. One of the partners handles every project from start to finish.
The firm opened 27 years ago with Wells and Klein, but since then Mark Darnold and Mark Lindhult have joined them, adding to their ability to oversee large projects. And although the principals could have grown the venture by taking on more project managers, thus relinquishing direct control of some projects, Wells and Klein decided to maintain a hands-on approach and have kept that promise.
“It means that our clients get someone with more than 30 years of experience who is a professional and can see things that a younger staff person may not see,” Klein said.

Ground Level
BDG has been feted with a continual stream of awards over the years, including several for the Rocky Hill Cohousing project in Northampton.
“This was a very sustainable and green project with regards to the site development and stormwater management,” said Wells. “Plus, we created a tremendous amount of open space.”
The company’s most recent award came from AIA New York for two dormitories at Amherst College. “The buildings were done using sustainable practices with an eye toward the traditional classic architecture that is the hallmark of Amherst College,” said Klein. “The design was aesthetically pleasing and functionally exceptional in every facet of the building; we have always strived to be as green as possible even when green wasn’t in fashion.”
The firm cares deeply about its clients’ success, he continued, because the principals believe it reflects back on them. And that has a lot to do with how each building, as well as the overall property, looks when it is finished.
“We want to build projects that people like, will use, and that meet the goals for sustainability,” Klein said, adding that the company has completed many LEED (Leadership in Energy and Environmental Design) projects. At present, BDG is engaged in a Living Building Challenge as it plans for the construction of an environment classroom at Smith College.
The concept of Living Building Challenges is based on making decisions by addressing environmental, social, and economic problems that can arise, such as habitat loss and the lack of community distinctiveness.
Wells said the principals’ concern for the land goes back to their identity.
“We use sustainable principles in all of our projects,” he explained. “We have evolved over the years, as we started out as landscape architects and added other disciplines. We look at land differently than other professionals, which allows us to guide our clients more holistically and efficiently; if a building looks good and is in character with its surroundings instead of looking like it was forced on the land, it is usually more profitable.”
Decades of experience gives BDG a decided advantage over its competitors. “We can look at and envision opportunities and constraints on a piece of property as well as the permitting hurdles,” Klein explained. “There may be traffic issues, poor soil, or a site may be too steep for various types of development.”
BDG recently conducted a study on a tract of land for a proposed school. “We found it had topographical constraints. It sloped too much to develop any playing fields. If they had used it for that purpose, their budget would have had to increase, and it could have become quite costly,” Klein said, as he sat in the company’s Northampton office in a room covered with mockup boards in all stages of completion. “Because of our depth of knowledge, we are able to inform clients quickly about additional costs during construction.”
Klein said the company’s A-to-Z approach is one of the keys to its success.
“We are able to take a blank piece of land and do a feasibility study on it to see what it can carry in terms of capacity,” he explained. “After that is determined, we do a preliminary design and get all of the permitting approved, then do the construction documents. We bid the project for developers, and we oversee the construction.” BDG can also illustrate a design proposal before ground is broken by employing computer-generated models and animation.

Step by Step
The permitting process is typically complex and takes many months to complete. “We know the regulations. We also have good working relationships with many board members in the surrounding cities and towns in the Commonwealth,” Wells said.
Right now, the company is in the process of developing several of the largest projects in Western Mass., including the $42 million master plan for Three County Fairgrounds in Northampton and the Colvest Group’s $25 million Chicopee Crossing, which is under construction and will include a hotel, retail shops, and restaurants.
Other projects include the new Easthampton High School and two housing developments in that community — an apartment complex with 50 units in an old mill building on Cottage Street, and Parsons Village, a 38-unit affordable-housing development on four and a half acres. Construction on the village is expected to begin in 2012.
BDG also conducted all of the site work and design for the housing at the former Northampton State Hospital, which includes townhouses, single-family, and multi-family rental units. In addition, BDG is on the team working to redevelop the Indian Motorcyle Apartments at Mason Square in Springfield.
“And we are in the permitting process for Northampton’s newest park, which will be built on 30 acres in Florence,” said Wells. Recent work also includes completion of the new $40 million pharmacy building at Western New England College.
Their company’s client list contains a substantial number of repeat customers who like the fact that they don’t have to hire a number of consultants to get the job done.
“Our process is cost-effective and streamlined so there is less chance of scheduling conflicts or mistakes,” Wells explained. “For instance, a developer could go to four firms who would have to coordinate to complete a project. But we can do it all under one roof. And because we are in Western Mass., our focus is here in the Pioneer Valley.
“We know the area, know the local contractors, and know the local bidding processes, as we do a lot of it and have strong relationships with general contractors,” he continued, adding that he and Klein visit their sites often, which insures that things move along smoothly.
Their expertise and reputation has allowed them to develop a broad customer base which reaches to distant shores, including Taiwan, Puerto Rico, New York, Los Angeles, and Atlantic City.
But their real focus is the Pioneer Valley, where they approach projects in a way that shows respect for the environment. And that respect for the land bodes well for the future — both for BDG and for its clients.

Developmental Delay or Disability?

By
Sections Supplements
Making Early Identification of Your Child’s Special Needs
Melissa R. Gillis

Melissa R. Gillis

Dennis G. Egan

Dennis G. Egan

Parents of young children, particularly children under the age of 5, often wonder whether their child is meeting all the important developmental milestones. Many guiltily admit that they want to know how their son or daughter compares to other kids their age, and they become concerned if they hear that another child can do something theirs cannot.
Sometimes these worries simply trouble loving parents who want the best for their children, and they soon realize that their child just needed a little more time to accomplish the same task. Other times, and at an ever-rising level over the past decade, the concerns of parents are justified, leaving them to wonder, ‘what do I do now, and whose attention can I bring this to?’
If this situation sounds familiar, the first step in the identification process is to bring your concerns to your child’s pediatrician. The doctor can be a very powerful influence when making the initial decision about whether to seek formal testing, and also later when determining what types of services are important and appropriate.
Between the ages of 1 and 3 (or prior to the start of preschool), your child is entitled to a free assessment/screening, typically referred by a pediatrician. This is usually performed by the infant-and-toddler program in your area. If the results of the assessment indicate and identify a need, the commonwealth will provide your child with certain services, potentially in and out of your home, free of charge.
Once your child reaches the age of 3, the types and availability of those services may change. These are the preschool years, whereby your child will receive services through an individual education program (IEP) designed just for them and administered by the early-intervention program located within your town. This IEP, subject to review and revision, follows your child into kindergarten at age 5 and beyond. Parents have a right to be involved in the contents of the IEP, and you should remain as involved as possible.
From the special-education perspective, having a child attend a private or public preschool can be pivotal. Preschool is often the first social interaction outside the home or parent-supervised playdates a child has. Because there are so many quickly changing and growing stages up until the time a child begins to read and write, there is more than one appropriate time to discover a special need.
When your child has been attending a private preschool, and you learn that early intervention is needed, you may be faced with the difficult decision of whether to take the child out of the private school, where he or she has become comfortable, and enroll them in your town’s early-childhood program. You may ponder the benefit of continuing to pay for a more expensive private school when a public alternative is available.
It is important to note, however, that the private preschool can still be used as a valuable social-skills developmental tool for continued interaction in a safe environment that your child already trusts. In those instances, the private preschool can be used in conjunction with the town program for services to ensure that your child is receiving the best overall services and is engaged in the best possible action plan to suit his or her particular need.
Prior to the preschool years, your child may not yet have been identified as having a special need for which services are required and necessary. It is important to recognize that the lack of identification is not necessarily a parental failure, but can be due to the fact that your child has not yet been placed in a situation where his or her need would be discovered. Parents should always embrace the assessment suggestion and never shy away from it. Neglecting to identify your child’s need sets them up for unnecessary difficulties in later school years. Early intervention can have a huge impact on the overall development of a child and his or her ability to succeed in school.
By way of example, a trained preschool teacher can recognize and identify issues involving hand-eye coordination, speech, and independent social interactions that may not be obvious to a parent who is with their child every day. If a teacher suggests that your child should have an assessment, it is because they have observed your child on multiple occasions having difficulties or experiencing an inability to meet a developmental stage that is imperative to continued learning and/or social development. Additionally, sometimes a need is not discoverable until kindergarten or even first grade, when a child begins to read, write, and engage in reading comprehension. A disservice is done to a child, however, if an assessment is not performed when a delay or disability is suspected.
Remember, you are your child’s strongest advocate. If you suspect your child may have a special need, show your strength and concern as a parent and get them the assistance they are entitled to.

Melissa R. Gillis, Esq. is an associate with Bacon Wilson, P.C. in the special-education, family, and real-estate departments; (413) 781-0560; [email protected]. Dennis G. Egan Jr. is an associate with Bacon Wilson, P.C, concentrating in special-education, business, and corporate law; (413) 781-0560; [email protected]

The CLASS Act

By
Julie Lackner, Esq.
Sections Supplements
Health Reform Adds a Twist to Long-term Care Insurance

Imagine that long-term care insurance meets Medicaid, and you will begin to have some idea about the new CLASS Act. CLASS is a program established by the new health care reform law, and it stands for Community Living Assistance Services and Supports.
At a time when long-term care costs are expensive and only becoming more so, the program represents the first major attempt of the federal government to provide long-term care benefits. The program went into effect on Jan. 1, 2011, but it is unlikely that you’ll be able to enroll before 2012 because a number of details still need to be ironed out.

Julie Lackner, Esq.

Julie Lackner, Esq.

The program will be administered by the federal Department of Health and Human Services (HHS) and its secretary, Kathleen Sebelius. CLASS is completely voluntary and is meant to provide cash benefits to working adults who become functionally disabled.
The program is similar to private long-term care insurance because you pay the premiums. It resembles Medicaid, however, in that it offers lifetime benefits and can’t exclude people with pre-existing conditions.

Who Can Enroll?
Any working adult can participate. You must be over 18 years old and actively employed. The details of what constitutes actively employed will be determined by the HHS, but will include part-time employees who earn enough to pay Social Security taxes, or about $1,120 per year. It will also include self-employed people. Retirees, unless they continue to work part-time, will not be eligible. Patients in nursing homes and other institutions, as well as incarcerated people, will be eligible to enroll. The most attractive part of CLASS is that you are not ineligible if you already have health issues.
One major drawback of private long-term care insurance is that you are often disqualified for pre-existing conditions. The CLASS legislation prohibits this kind of underwriting. As long as you can pay the premiums for five years and continue to work at least part-time during three of those years, you can enroll, and you won’t be excluded from receiving benefits. You can either become enrolled through your employer, or you can enroll on your own if your employer decides not to participate. The method for enrolling on your own hasn’t yet been determined, but it will be up to HHS to institute that. If your employer signs up, then all employees will be automatically included. Nevertheless, you can always choose to opt out of the system.

How Much Will It Cost?
Payments for the cost of the premiums will be deducted directly from your paycheck if you enroll through your employer. When the Congressional Budget Office analyzed the legislation, it estimated that monthly premiums would average around $120. This means that, if you get paid weekly, about $30 will come out of each paycheck to pay the premiums for your coverage. Your employer will have the option of deciding whether it wants to cover any of the cost of the premiums. If you’re lucky, your employer may decide to do so as an additional part of the benefits package it offers to employees.
Under the law, premiums can be lower for younger people and higher for older participants. Generally, this makes sense because younger people will usually be paying the premiums for a longer period of time. Additionally, there are some very attractive provisions: premiums are intended to remain the same throughout a person’s lifetime, and people with health issues cannot be charged higher premiums. For people below the federal poverty line and for working students, there will be a special low premium that may be as little as $5 per month. All the premium information has to be determined by HHS by October 2012. Until then, no one knows for sure how much CLASS will cost.

How Do I Get Benefits?
The CLASS Act has various vesting requirements that you must meet before you can become eligible for benefits. First of all, you must pay the premiums for at least five years before you are eligible for benefits. Second, you must have been actively working at least three of those five years. Special rules will apply if you drop out of the program and then subsequently reapply. If you re-enroll within 90 days, your premiums will not change. After 90 days, however, the premium may be adjusted based on your current age. So if you join the program when you are 22, drop out for more than three months when you are 40, then re-enroll a year later, your new premium will be based on your current age of 40, and it is sure to be higher than the premium you had at age 22.
In addition to meeting the vesting requirements, you must have a qualifying level of disability to begin receiving benefits. The benefits granted by the program will depend on the level of physical and/or cognitive disability. The qualifying level of disability is defined as being unable to perform at least two or three of the Activities of Daily Living (ADLs), which include eating, bathing, and dressing yourself. Alternatively, the qualifying level of disability can be met if you require substantial supervision due to cognitive impairment. The disability must occur for at least 90 days consecutively to qualify. But as long as a qualifying level of disability exists, you can continue to receive benefits.

How Large Are the Benefits?
CLASS will pay a cash benefit of no less than $50 per day on average. This means that some people will receive more than $50 and some will receive less, but the average amount paid out cannot be less than $50. The benefit will depend on the level of disability and will increase annually to keep up with inflation. The beauty of CLASS is that there is no lifetime limit on benefits. If you’re eligible for benefits under CLASS and you get into a car accident at age 40 resulting in the need for care for the rest of your life, you’ll get a payment from the government every month, adjusted for inflation, as long as you live.
One criticism of the program is that CLASS could never cover the entire cost of long-term care in a nursing home. Although that is likely to be true, even $50 a day will help finance extra help at home, or take care of part of the cost of assisted living or adult day care. With the cost of a private room in a nursing home averaging over $9,700 per month in Massachusetts in 2010, every little bit helps.
CLASS can provide assistance to people who have pre-existing conditions and would never be able to obtain long-term care insurance. It can also provide benefits to those who make too much money to qualify for Medicaid but not enough to pay the premiums on private insurance. The bottom line is that CLASS is likely to be a winner because it will cost less than long-term care insurance, while providing benefits to more people.

Julie R. Lackner, Esq. is an associate attorney with the Springfield-based law firm Bacon Wilson, P.C. She handles all aspects of estate planning and elder law; (413) 781-0560; baconwilson.com; bwlaw.blogs.com

Alternatives to Chapter 11 Reorganization

By
Steven Weiss
Sections Supplements
Filing Is One Option, But There Are Many Paths to Recovery

If your business is in financial trouble, it may be tempting to consider filing a Chapter 11 bankruptcy petition. There may be many potential benefits: it puts at least a temporary stop to creditor collection efforts, it provides a venue in which to reduce a company’s debts, and it may create the vehicle from which to emerge from bankruptcy as a leaner, stronger company.

Steven Weiss

Steven Weiss

However, Chapter 11 is no automatic panacea for an ailing business.
Chapter 11 proceedings are expensive and a considerable distraction to the regular conduct of business. There will be supervision and reporting requirements with an unsecured-creditors committee and the U.S. trustee. The fees for the company’s bankruptcy attorneys and other professionals are considerable. Also, there will almost certainly be reductions in revenue immediately after customers learn of a Chapter 11 filing. And while it is relatively easy to get into Chapter 11, successfully emerging from bankruptcy is by no means assured. Fortunately, there are simpler, less costly alternatives; indeed, the best reorganizations are usually the ones that never see the inside of the bankruptcy court.
Perhaps the most important part of the reorganization analysis is to take a cold, dispassionate look at a business to see if there is really a core business that can be successful. This can be particularly difficult for owners of small businesses, who may have spent their adult lives developing the operation, or for owners who have taken over operations from the family founders of the business. However, there is little point to incurring the financial — and emotional — efforts of reorganization if there is little chance of success. So business owners need to ask some tough questions.
Are the financial troubles attributable to a one-time event, such as the loss of a major customer? Or are they due to a steady decline in revenue? Are certain parts of the business dragging down the other, more profitable lines? Are there weaknesses with current management that can be resolved? Is the amount of debt that won’t go away easily, e.g., bank debt and tax obligations, too high to be addressed even in a reorganization?
Because it is obviously difficult for a business owner to give these questions a truly unbiased analysis, it is useful, and probably imperative, to involve legal and financial advisors in the process.
If there is a viable business plan, the next step is to determine whether the plan can be accomplished without a Chapter 11 reorganization, and the first part of this process is to determine the primary sources of the financial pressure. For instance, if a secured lender is threatening collection action, then management’s efforts should be focused on reaching some accommodation with the lender. Secured lenders obviously have to be concerned with customers’ performance; however, except in rare instances, lenders would rather have a client continue to operate and make payments than have to liquidate their collateral.
Thus, banks may be willing to enter into forbearance agreements. Typically, these agreements provide for reduced payments and time to restructure a business or seek alternate financing. Lenders may also be willing to allow borrowers to liquidate unnecessary assets or business lines on a going-concern basis, which will usually generate better results than an auction sale.
If, on the other hand, the primary business is suffering pressure from trade creditors, there are other tactics. Fortunately for small businesses, unsecured creditors have limited legal remedies and little leverage in collection efforts, especially if the bank lender has a blanket lien on all of the business assets. And most sophisticated creditors know this. So trade creditors are often willing to take a significant discount on their claims simply because getting something is better than nothing. These discounts can be affected in a number of ways, depending on the circumstances of each business.
In some instances, arrangements can be made with individual creditors. If the creditor pressure is broadly based, making individual settlements may not be practical. Surprisingly, a carefully worded letter from counsel, explaining the circumstances and proposing either a moratorium on debt payments or discounted settlements to all trade creditors, may be accepted by the overwhelming majority. In some circumstances, particularly in larger businesses in which there are concentrated creditor bodies, groups of creditors may combine to form an informal committee to negotiate a settlement with creditors.
Many — indeed, maybe most — Chapter 11s being filed in recent years are not true reorganizations; instead, they result in sales of the company’s business as a going concern. Again, while there may be reasons to sell a business through the bankruptcy process, there are non-bankruptcy alternatives to a court-supervised sale.
Chief among these are assignments for the benefit of creditors. These are non-judicial business liquidations conducted under Massachusetts law. Management can choose the assignee, usually an attorney with bankruptcy and collection expertise. The assignee conducts his or her due diligence to ensure that the sale transaction is a fair disposition of the assets, and that there will be at least some meaningful dividend to unsecured creditors.
The assignee has wide latitude in how the sale will take place; while it can be by auction, he or she can also sell the assets as a going concern, which may contain terms favorable to management, such as employment agreements.
Once the assets are sold, the assignee notifies all creditors and provides them with a form for submitting their claims. If sufficient numbers of creditors accept the assignment, the assignee then makes a distribution to creditors. Again, the benefit to trade creditors is that they receive partial payment on their claims far more quickly than would be the case in liquidation proceedings in bankruptcy court.
Ultimately, Chapter 11 is like any other legal strategy; it may be useful, but only in the right circumstances, and only after other, less costly alternatives are considered.

Attorney Steven Weiss is a partner with Springfield-based Shatz, Schwartz and Fentin. He concentrates his practice in the areas of commercial and consumer bankruptcy, reorganization, and litigation. Weiss supervises the firm’s bankruptcy, reorganization, and workout practice; represents creditors, debtors, and others in both commercial and consumer bankruptcy cases throughout Massachusetts; and has been a member of the private panel of Chapter 7 Trustees for the District of Massachusetts since 1987, and also serves as a Chapter 11 trustee; (413) 737-1131.

It’s a Relief

By
Terri Judycki, CPA, MST
Sections Supplements
What the Recently Passed Tax Legislation Means for You

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the 2010 Tax Relief Act) was signed into law Dec. 17, 2010, avoiding what would have been one of the largest tax increases in history if Congress and the president had not compromised.

Terri Judycki, CPA, MST

Terri Judycki, CPA, MST

As background, in 2001 and 2003 Senate Republicans were not certain they could pass permanent tax cuts with the required votes. As a result, both the 2001 and 2003 tax cut acts were passed as reconciliation bills that needed fewer votes. Under the ‘Byrd rule,’ bills passed under reconciliation may not alter federal revenue for more than 10 years. Consequently, the 2001 and 2003 tax cuts were scheduled to sunset after 2010.
The 2010 Tax Relief Act extends the Bush-era individual income tax cuts for all taxpayers and makes many other changes. A brief description of some of the provisions follows.

Individual Income Tax Rates
The sunsetting of the tax cuts would have resulted in tax rates of 15%, 28%, 31%, 36%, and 39.6%. Under the 2010 Tax Relief Act, individual income-tax rates will remain at the current levels for 2010 and 2011: 10%, 15%, 25%, 28%, 33%, and 35%.

Capital Gains/Qualified Dividends
The maximum rate of 15% for long-term capital gains and qualified dividends have also been extended through 2012. Taxpayers in the 10% and 15% tax brackets continue to pay 0% on this income. Had this provision been permitted to expire, the maximum rate of tax would have been 20% on long-term capital gains, 39.6% on qualified dividends.

Itemized Deduction and
Personal Exemption Limitations
Higher-income individuals would again have found their itemized deductions and personal exemptions reduced. Under the 2010 Tax Relief Act, higher-income taxpayers will receive benefit of the full deduction through 2012.

Marriage Penalty Relief
This refers only to the tax penalty. The expiring tax provisions provided that the standard deduction and the 15% tax bracket for married couples filing jointly were double that of a single filer. This is extended through 2012.

Alternative Minimum Tax (AMT)
The 2010 Tax Relief Act includes an AMT patch for 2010 and 2011. The patch provides increased exemption amounts to avoid impacting many middle-class taxpayers.

Charitable Incentives
The Tax Relief Act extends several charitable incentives, including tax-free distributions from IRAs to charitable organizations.

Individual Tax Credits
The act extends various credits through 2012, including the $1,000 child tax credit and the American Opportunity Tax Credit for higher education expenses.

Individual Tax Extenders
Expiring at the end of 2009, the following were extended for 2010 and 2011: state and local sales-tax deduction, higher-education tuition deduction, and teacher’s classroom-expense deduction.

Payroll Tax Cut
For 2011 only, the employee portion of the Social Security tax is reduced from 6.2% to 4.2%. The self-employment tax rate is also reduced by 2%. In 2009 and 2010, the Making Work Pay credit provided a $400 credit to single filers and $800 to taxpayers filing jointly, subject to phaseout for higher-income taxpayers. This new payroll tax ‘holiday’ has no income limitation. Therefore, jointly filing taxpayers who make more than $40,000 will receive more under the new holiday, while those public employees who do not pay into Social Security will not receive any benefit.

Section 179 Expensing
Under Section 179, a business meeting certain limits can currently expense the cost of asset purchases. The 2010 Small Business Jobs Act increased the expense limit to $500,000 for businesses with maximum investment for the year of $2 million for 2010 and 2011. The 2010 Tax Relief Act provides for a 2012 limit of $125,000 for businesses with a maximum investment of $500,000, indexed for inflation. Setting the 2012 limit now may permit businesses to budget capital improvements.

Bonus Depreciation
Under the 2010 Small Business Jobs Act, businesses could claim 50% bonus depreciation on qualified assets. Under the Tax Relief Act, bonus depreciation is increased to 100% for qualifying assets placed in service between Sept. 9, 2010 and Dec. 31, 2011. For assets placed in service during 2012, 50% bonus depreciation will apply. While 100% bonus depreciation sounds like Section 179 expensing, bonus depreciation is not subject to limitations for businesses that make large capital-asset purchases and is not subject to the Section 179 income limitations. Unlike Section 179 expensing, bonus depreciation can create or increase a net operating loss. On the other hand, many states do not allow bonus depreciation, but do allow Section 179 if claimed on the federal return.

Tax Credits
Several credits were extended, including the research credit that had expired at the end of 2009, as well as various energy credits.

Estate and GST Taxes
The 2001 tax cut phased out the estate and generation-skipping transfer (GST) taxes so that they were fully repealed in 2010. In 2009, there was a $3.5 million estate/GST tax exemption and a 45% estate-tax rate. In 2010, in lieu of estate taxes, a modified carryover basis would apply to assets owned by a decedent. In 2011, the estate/GST tax was scheduled to return with a $1 million exemption and estate tax rates up to 60%.
The 2010 Tax Relief Act reinstates the estate tax for decedents dying after Dec. 31, 2009, but with a $5 million exemption and a 35% estate tax rate. Estates of decedents dying in 2010 have the option to elect either the new estate tax or the modified carryover basis. There are also significant opportunities for GST tax planning, but those changes are too technical for this article. Suffice it to say that many wealthy taxpayers should be funding new GST trusts by the end of 2010. The new estate-tax regime is once again temporary and scheduled to sunset at the end of 2012.

Conclusion
The 2010 Tax Relief Act also included temporary extension of unemployment insurance, with the total cost estimated at about $858 billion by the Joint Committee on Taxation.
The new law allows taxpayers to plan through 2012, a presidential election year. One of the bigger battles this year concerned extending the tax cuts for higher-income taxpayers, not just those making less than $200,000 if single ($250,000 if filing jointly) as proposed by the Obama administration. It’s reasonable to expect that debate to resurface in 2012. n

Terri Judycki, CPA, MST, is senior tax manager with the certified public accounting firm Meyers Brothers Kalicka, P.C., based in Holyoke; (413) 536-8510.

Rising Tide

By
Paul Valickus (left), with St. Germain Investment Management President Michael Matty
Sections Supplements
Stock Market Expected to Grow Along with Economy in 2011

Paul Valickus calls it “the Christmas-tree analogy.”
“Christmas tree sales over this past Thanksgiving weekend were up 12% year over year,” he said — and then wove that fact into his stock-market outlook for 2011. “That may sound a little silly, but it tells me that people were more confident and wanted to start celebrating a little earlier, to spend a little more money. It was an indicator of hope, if you will.”

President Michael Matty,

Paul Valickus (left), with St. Germain Investment Management President Michael Matty, says all signs point to a strong year on Wall Street.

It may be a small point, said Valickus, chief investment strategist at St. Germain Investment Management in Springfield, but it’s one of many larger trends — a decline in business vacancy rates and an uptick in employment among them — that point to rising confidence in a slowly improving economy, and that bodes well for the stock market in the coming year.
“I normally don’t make market forecasts, but I think this is an easy one,” Valickus said. “I think the economy and the stock market are going to do much better than most pundits are expecting.”
He cited last month’s Barron’s magazine forecast, which gathers the projections of 10 market experts, most of whom expect stock-market growth around 10%. “For me, that’s kind of a chicken forecast. A rise of 10% is what the market averages, trendwise, going way back. I think they’re just afraid to stick their necks out.”
Coming off the strong market surge late in 2010, George Keady hears the positive drumbeats, too, but has a different take. “That concerns me,” said the senior vice president and branch manager of UBS Financial Services in Springfield. “Don’t forget that what went on in November and December may have been an early 2011 gift. A lot of the movement in equity prices was a little premature.
“We’re expecting a moderate recovery in the economy — not a strong recovery, and not a double-dip,” Keady added. But because the market is all about expectations, he explained, that optimism has already been factored in. “When you see stocks move to the degree they moved in one month, that’s pretty optimistic. We have a positive outlook for next year, but part of next year happened in December.”
Boston Globe columnist Steven Syre agrees, noting that “a good deal of economic enthusiasm is already baked into the market. The S&P 500 index has climbed 21% in just the past four months.”

Changing of the Guard
Valickus, however, believes the upward movement is far from over, and he traces that belief back to the midterm elections two months ago, arguing that businesses spent the past two years in limbo in terms of their expectations about taxes, regulations, and other issues affected by the goings-on in Washington.
“Where I differ from a lot of people is, I think the economy will do a lot better than people expect, and I think the biggest catalyst is the November elections; people have a little more confidence in the business outlook now that Democrats lost their majority in the House.
“There’s a lot of pent-up demand out there,” Valickus added. “People were just afraid to do anything with certainty; they’re most comfortable having a Republican Congress going forward. Whether the Republicans are successful or not, there is that hope out there that maybe we’ll see a little more discipline in Washington. What the market abhors is uncertainty, and things now look a little more certain. Nothing is written in stone, but people are a little more comfortable.”
Writing in Barron’s, Kopin Tan sums up the view of the analysts who spoke with the magazine, noting that their modest projections about market performance bely a much more positive long-term outlook on the economy.
“A majority see 2011 as the year when a sustainable economic recovery takes root, winning over skeptics and persuading both companies and consumers to relax their stranglehold on squirreled-away cash,” Tan writes. “Improving confidence and low interest rates bode well for corporate profits. Meanwhile, the Federal Reserve remains hell-bent on propping up asset prices, and wages and prices of goods aren’t rising enough to sound an inflation alarm that would lead the central bank to alter its course of aggressive benevolence.”
Specifically, the strategists projected stock-market gains ranging from 7% to 17%. And while progress could be set back by global flareups such as trade tensions and conflicts in places like Iran and the Korean peninsula, Tan notes, “the market has started to flinch less at each flare-up of risk.”

Mixed Signals
At a time when rising interest rates are expected to weaken the bond market in 2 011, stocks are justifiably generating enthusiasm, but Keady pointed out that the picture is not rosy across the board.
For instance, he explained, while technology and consumer staples remain strong, health care and energy are charting a flatter course, and more than 30% of the companies in the S&P 500 overall were actually down in 2010.
Analysts note that prolonged cost-cutting and increasing consumer confidence, among other factors, point to long-term economic growth, but Keady said these market fundamentals still have to catch up with equity prices.
But in the short term, much of the market’s performance will depend on increasing confidence, and how long it can be maintained.
“What most people don’t understand is that the market can go up without the economy doing anything,” Valickus said. “People say, ‘wait, unemployment is 10%; how could the market go up?’ But it’s not what happened today; it’s what will happen tomorrow. That’s where a lot of people get confused.”
Still, judging by those Christmas trees in November — as well as plenty of other positive signs — confusion is giving way to confidence, and investors are putting more stock in the market.

Joseph Bednar can be reached at [email protected]

Lending Support

By
Sections Supplements
How Do Banks Decide Where to Direct Their Charitable Giving?

Tom Brown

Tom Brown says bank executives and employees see charitable giving as part of their corporate responsibility.

Virtually all banks, particularly ones with deep roots in the communities they serve, make a point of giving to nonprofits and other organizations and events that benefit a wide variety of people; in fact, they’re required by law to disburse a specific percentage of their charitable assets each year. And with community needs so great, especially in sluggish economic times, banks must develop strategies to determine which causes to support. Those decisions are not always easy.

There’s a good reason why many nonprofits and other local causes approach banks for funding, said Tom Brown.
“That’s where the money is.”
But, more important, banks have also long established themselves as reliable, go-to donors for a host of community endeavors. Most banks have established foundations for that purpose and are required by law to donate at least 5% of those assets annually.
“The commitment of all the community banks in the Valley is important,” said Brown, senior vice president of retail banking at Easthampton Savings Bank (ESB). “In so many local projects, you’ll see that some bank is a lead sponsor. All community banks take that as our corporate responsibility.”
And the need, according to administrators at several area banks, has never been greater.
“This is a subject near and dear to my heart,” said Rick DeBonis, senior vice president of marketing at Hampden Bank. “We do a lot in the community with respect to supporting in terms of money and in terms of sweat and rolling up our sleeves. We’re very involved.
“We get requests on a daily basis, coming to me or someone else in the organization,” he continued, noting that banks must develop strategies to sort through what is often a sea of pitches. “We have certain guidelines we use, the first of which is the relevance to the bank’s mission statement and our overall objectives as a community bank.”
That means supporting causes that have a direct impact on the greatest number of area residents, said DeBonis, noting a few examples, including schools, youth athletic programs, and, increasingly, cultural events. “We’re looking for not just nonprofits, but things that bring the community together and could have a psychological benefit as well as a financial benefit, in many cases. It’s a broad spectrum of organizations and activities, and we are happy to be a part of it.”
Dena Hall, vice president of marketing and community relations at United Bank, said her institution focuses on specific areas of interest when sorting through grant requests, specifically education, health and human services, youth programs, and cultural programs.
“We will entertain proposals and review the proposals as a group and make decisions whether to fund it,” she said of United, which operates a foundation worth $5.5 million at last count — meaning a minimum annual disbursement of $275,000 to qualified nonprofits — and also a community-sponsorship budget that makes smaller donations to area causes and events.
In either case, “the organization has to operate in the communities we serve, and there are certain things we will not fund” — salaried positions, for example, seeing that the typical United grant of $5,000 to $10,000 wouldn’t cover a significant amount of a paycheck.
However, there have been larger contributions, including recent support of Baystate Medical Center’s ‘Hospital of the Future’ expansion project. “We felt the scope of that project was wide,” Hall said, and it covers a lot of the same areas where our customers live, and we felt it would benefit our customers in the region we serve, so we participated in this great campaign to give our region a wonderful new hospital.”
Doug Burr, senior vice president and director of marketing at Florence Savings Bank, said his bank’s giving is reflective of the communities it serves, so it contributes to 501(c)3 groups that do business in its market.
“We feel we should take on community needs,” he said. “We can’t take on national and international needs; we can’t make a difference there, but we certainly can make a significant impact here in the local community — with a local hospital, a local library, a local school. And we feel good about that.”
For this issue, BusinessWest visits several local banks to discover how they decide how to distribute a finite amount of money to deserving organizations — and why they consider it a crucial part of their community mission.

Getting the Vote Out
“Because of who we are and the fact that we’re a mutual bank, here since 1873,” Burr said, “one of our core principles really is community giving and taking care of our customers. We’ve always said that, being a mutual savings bank, we pay our dividends back to the community because we don’t have stockholders.”
With that reputation, he told BusinessWest, Florence Savings Bank is typically one of the first doors to get knocked on by organizations looking to boost capital campaigns or fund drives.
“Because we’re a local, community bank, we don’t have a really formal process for our giving program,” he said. “People who have a need sit down and talk to me, the guy that makes the actual decisions. That face-to-face can’t always be done in larger organizations, and it’s a real benefit.”
Nine years ago, FSB took that informal approach a step further, launching a program called Customers’ Choice Community Grants. That effort allows the bank’s customers to vote a share of $50,000 to their favorite local organizations, agencies, and schools. The money is allocated by percentage of votes; every organization that gets 1% of the vote gets a percentage of the money.
That often results in some good-natured lobbying among agency leaders, school principals, and others to persuade FSB customers to throw them a few votes — which, of course, serves as free advertising for the bank.
Burr said he and President John Heaps developed the idea as a way to determine if the bank’s giving patterns matched community priorities. For the most part, that has proven to be the case.
“It validated a lot of the giving we did in the past,” Burr said. “When I look at the top 100 vote-getters, they’re all organizations we’re familiar with and have helped. At first, I was amazed how many nonprofits are in our area — about 300 each got a vote — and it kind of answered our question, are we doing what customers would want us to do?”
The bank uses that data to shape the direction of its larger donations, he added, but it has also drawn new retail customers who appreciate the way the bank connects with its market communities through the voting program.
“It’s a powerful thing,” Burr said. “In one sense, it’s the right thing to do, but it’s also powerful from a business-development perspective. And our employees feel good about the bank supporting these organizations; this is their home, and we’re helping our friends and neighbors as well as our customers.”

Narrowing the Field
All banks have to develop strategies for distributing philanthropic dollars, and many, like United and Hampden, narrow their focus to a few areas of interest.
“One of the biggest questions is, what has the potential to positively impact the community in the broadest way; what affects the most people?” DeBonis said, noting that his bank gets input not only from the organizations themselves, but in many cases from employees who sit on their boards.
“Mix all these together, and we make decisions as to what makes the most sense. Like I’ve said, the need has never been greater, and we have found that we cannot say yes to everybody; there have to be some particular guidelines with respect to how we allocate those funds.”
Brown, at ESB, agrees.
“It begins with requests, which come in from a lot of different sources,” Brown said. “We try to focus on local organizations, and for us, the three predominant areas of our contributions would be education, human services, and arts programs. But the focal point is local; we’re not usually contributing to large, national organizations, but instead local, grassroots, homegrown entities within our market.”
The other priority is an organization that will benefit a large group of people, he added. That opens the door to some national agencies, like the United Way, that support a wide range of local constituencies, but still leaves room for annual support of efforts like sports teams and school yearbooks, as well as one-time community events.
“When the town of Hadley had its 350th, we were major sponsors of that,” Brown said. “When Easthampton has its bear festival, we’re major sponsors of that. If a community is building a new playground, we may decide to sponsor that. We’ve always looked at this as our community dividend. It’s our responsibility, as a community bank, to give back.
“And it’s not always just about money,” he was quick to add. “Most of our 170 employees are involved in some way with some organization in the community, with a wide range of activities, from raking and shoveling on cleanup day to serving as a board chair or board member. Many organizations have told us that’s as important as writing a check. If you look at the employees of the bank, from the president to the tellers, you’ll find them active in the communities in which we operate.”

Stretching the Dollars
Hall said she and other decision-makers want to be sure that United Bank’s charitable efforts benefit the largest group of constituents and that the projects it funds are viable. “We’re never the only funder, but we’re looking for organizations with multiple funders and track records of success.”
Although United has funded and will fund smaller organizations with smaller grants, she said, it focuses mainly on organizations that can make a long-term impact on its communities — for example, funding a new emergency-rescue vehicle for the Red Cross, afterschool programs at the YMCA, or textbooks for Ludlow schools’ ‘literacy closet.’
Like many banks, Hall makes a point of sharing news of such grants in United’s publication, Yankee Connections, which only leads to further requests. “When it comes out, I get calls from organizations asking, ‘can I get your guidelines?’” She has also moved to communicating giving news on the bank’s Facebook page. “I feel like we’re talking to a whole new group of nonprofit organizations by publishing there.”
Which, of course, only leads to more decisions to make. While Hampden Bank was recently honored by the Western Mass. Assoc. of Fundraising Professionals with its 200 Outstanding Philanthropic Corporation award — for its support of Mercy Medical Center’s ICU and surgical center projects, among other efforts — DeBonis lamented that more worthy causes exist than the bank can support, even just in its market communities.
“There are some things out there that we’d love to fund and sponsor, but we have to look realistically at the cost of participation in relation to the overall dollars available,” he said.
He and others who spoke with BusinessWest understand all-too-clearly that the sluggish economy, just now emerging slowly from a crippling recession, has put the squeeze on nonprofits and other charitable causes, and the size of the average request has grown.
“It’s important for everyone to realize that every bank has a limit on what they can give away,” Brown said. “We try to meet these needs, but we’re trying to spread around a finite number of dollars. It’s not a bottomless pit of money, and we’re trying to be as equitable as we can and fair to everyone.”
These days, that’s just part of what it means to be a community bank.

Joseph Bednar can be reached at [email protected]

Clearing the Clouds

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IBS President Dave DelVecchio
Sections Supplements
Innovative Business Systems Hones Its Pitch

IBS President Dave DelVecchio

IBS President Dave DelVecchio

In 20 years, Innovative Business Systems has evolved from a software-development firm to an outfit that businesses of all kinds rely on to manage their computer networks, data security, and a host of other high-tech needs. But as it celebrates this anniversary, IBS has launched a rebranding effort that aims to better-clarify what its services are, and why they are becoming increasingly necessary.

Dave DelVecchio says that the speed at which information technology advances can leave business owners confused, buffeted by buzzwords, and unsure of the value of an IT partner.
Innovative Business Systems Inc. has successfully built such partnerships for two decades, but DelVecchio, the company’s president, and his staff recently began to ask whether its customers and, perhaps more important, prospective clients really understand the need for its services.
“So many IT companies are so fixated on the ‘how’ that they can’t communicate the ‘why,’” he told BusinessWest. “We’re focused on helping businesses determine the why.”
Last year marked a 20th anniversary of sorts for this Easthampton-based IT sales and support firm (which launched in 1987 but didn’t officially incorporate until three years later). “And, as major milestones tend to be, that became a time for reflection,” DelVecchio said.
He explained that IT changes so much in a few years — “for some people, that’s a blink of an eye, but in our industry, it’s a lifetime” — that questions arose regarding how well IBS was delivering its message to the public.
“We weren’t sure we were doing an effective job communicating with prospects, clients, and the general public exactly what we do,” he explained. “Sometimes, we’re too close to it to communicate it ourselves.”
So the company launched a rebranding campaign, looking for a succinct way to communicate its range of services, and at the same time refreshing its logo. It enlisted an outside consultant for these tasks, and launched a new Web site earlier this month, presenting itself with the new tagline, “smarter technology for better business.”
“A lot of people historically have thought of companies like ours as computer repairmen, like they think of appliance repairmen or auto mechanics,” DelVecchio said. “That’s not what we do, or, it’s a very small subset of what we do.”
Rather, he said, “we help folks cut through the clutter of ever-changing technology, to find out what’s the right fit for a business, what’s applicable and what’s not, what fads stick and what’s a flash in the pan. We want to have conversations with them from a business perspective, not just a technology perspective. And we felt this tagline best encapsulates that.”

Gang of Five
Bill Tremblay began Innovative Business Systems in 1987 as a software-development outfit (more on that later), then sold the firm in 2003 to five employees — DelVecchio, Brian Scanlon, Scott Seifel, Ben Scoble, and Sean Benoit — who continue to run it today.
IBS handles PC sales, data analysis, networking, hardware and software support, repair, and maintenance services for businesses of all sizes. It built much of its business in the financial-services arena, working with banks and credit unions — both those with their own existing IT departments and those without — on issues including data access, information security, and disaster-recovery planning.
The rest of the IBS client list is comprised largely of small-to-medium-sized, privately owned businesses in a wide range of sectors, from health care to manufacturing, many of which are not large enough to have their own IT departments but view the need for constantly updated technology as a growing necessity.
“For many years, our niche was supporting banks and credit unions,” DelVecchio said. “But we’ve got multiple 10-employee companies running technology rivaling what the banks are running — remote offices, mobility suites, document imaging, hosting their own Web-based data applications, some of them being publicly accessible, and some in industries with strict security requirements.”
He said he gets annoyed when people assume that the need for the services IBS provides are always related to the size of the client. Instead, “the more technology-driven a business is, the better fit they are for us, regardless of size.”
One of the biggest issues IBS has dealt with in recent years has been access to data from various computers, company locations, or remotely. A related, and often equally important, consideration is data recovery, because it can be disastrous for a business to store information in one office only.
DelVecchio is especially excited about the company’s new data center in Marlborough, which will serve as a remote office, but, more importantly, as a disaster-recovery suite. In case of some event that renders a customer’s place of business unusable, IBS can transfer the contents of the client’s entire network to the Marlborough office, which is equipped with four workstations, in effect providing a location for that customer to continue to operate.
“From a solutions standpoint, this is huge,” he said. “In case of a localized disaster, like a fire, a flood, a sprinkler goes off at midnight and leaves the office knee-deep in water, this location is, in most cases, within an hour’s drive, so you have a place to function.”
Why Marlborough? Its distance is an asset, DelVecchio said, explaining that disaster-recovery suites should be close enough that the commute isn’t too onerous, yet far enough away to be clear of a regional disaster; 45 to 60 minutes away is ideal.
And while most businesses might never need the use of such a facility, many will, especially those in multi-tenant buildings, and should appreciate paying around $3,500 annually for a “a business continuity plan in a box,” he said.
“For tenants in a mixed-use, multi-tenant building, the odds of a localized disaster go up by a factor of 10. When you have a lot of tenants, all it takes is the tenant next door to plug up the drainpipe with grass and knock out the sprinklerhead, or put a candle too close to a curtain, to cause an issue. In multi-tenant buildings, we see this as an incredibly underused but much-needed solution.”

Down to Earth
Putting this sort of real-life face on often-complex technology is key to IBS’ new focus on communicating the big picture to clients, DelVecchio said.
He noted that Microsoft has been promoting ‘cloud computing’ — a term synonymous with Internet-based computing, whereby shared servers provide resources, software, and data to individual computers and other devices — “but if you ask 100 people what the cloud is, you get 100 different answers. The cloud can be a lot of things.”
He compared it to 15 years ago, when the commercial use of Internet technology was just exploding, and “cyber” became the hot buzzword, even though it wasn’t always used correctly. “We’ve developed our own cloud strategy to cut through that clutter.”
What businesses need to understand, he said, is what those buzzwords mean, and how the technology behind them can benefit their operations. He said some have predicted that 80% of all IT services will be cloud-based within five years, but feels that number may be a bit aggressive; he sees many firms using a hybrid approach. “Businesses might be running things like E-mail in the cloud and applications on premises, or vice versa. Determining the right mix for business is the foundation of what we do.”
No IT firm can be everything to all its clients, so IBS touts a number of ‘partners’ on its Web site — not formal partnerships, but related companies with whom IBS shares clients — that do a good job at what they do, and can benefit Innovative’s customers. “Building a strong partner network is something we take a lot of pride in; it takes a village to maintain an IT infrastructure, but we can be the hub that facilitates getting it done.”
Like companies of all sizes and in all sectors, IBS has endured a sluggish economy for the past few years, but felt it mainly in product sales, not consulting.
“In 2007 and 2008, most companies were investing in their business, with technologies like remote access and document-management solutions,” DelVecchio said. “When the economy slowed down, everyone went into a wait-and-see, maintenance mode; our revenue remained constant in 2009, but our material sales dropped 20%. People kept what they had; they weren’t upgrading. Over the course of 2010, though, we saw a consistent increase in projects.”
All the more reason to launch a rebranding effort — and make some hard decisions about the direction of the company.
“Every business has been forced to look at their balance sheet and take a look at expenses and figure out where they were getting value,” he said. “And if you’re not delivering value, should you be doing it?” In answering that question, last year, IBS phased out of the software-development business, which was the work on which the company was founded.
“Running a software-development business is a completely different model than running an IT service and consulting business,” said DelVecchio, noting that IBS’ full-time developer left the firm on amicable terms and continues to support all the clients for whom IBS had developed applications. “That allowed us to focus on our core business moving forward. After that decision, we focused creating branding for what our core business will be like in 2011 and beyond.”

Bottom Line
By all indications, that core looks healthy, he said, noting that, as clients started to order upgrades they had deferred during the recession, IBS saw a strong second half to 2010.
“Clients are back in the game,” DelVecchio said. “From a business outlook, I’m very positive about 2011. It appears that people have come out of their bunkers, and they’re ready to do business again.”
Whether in their offices, or in the cloud.

Joseph Bednar can be reached at [email protected]

Understanding Veterans’ Benefits

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Sections Supplements
Assistance Is Available to Those Who Qualify Financially

Hyman G. Darling

Hyman G. Darling

There are currently approximately 25 million veterans alive in the U.S., many of whom are not disabled. In addition, there are more than 9 million surviving spouses of veterans, many of whom will need long-term care or are currently receiving long-term-care benefits. The Veterans’ Administration has benefits available to assist veterans and their spouses with financial and other necessary services. Often these benefits allow a veteran or their spouse to remain at home rather than requiring assisted living or long-term care in a nursing-home environment.
This article will describe the various available options. It must be noted, however, that many services are available only to veterans who qualify financially and have honorable discharges.
A significant document that a veteran needs is the DD-214, or Separation from Service document. If it is missing, you are urged to apply to the Veterans’ Administration for a replacement copy so that, when the time comes that you need assistance with your care, you will have the required evidence of an honorable-discharge status.
One important benefit that you should be aware of is a service pension. The Veterans’ Administration (VA) provides a monthly cash payment to wartime veterans who meet active-duty and discharge requirements, who are either 65 years or older, or disabled. These veterans must also have a limited income or status requirement. Benefits are also available to a surviving spouse of the wartime veteran. At this time, the unmarried veteran may receive up to $985 per month while a married veteran may receive up to $1,291 per month, and a surviving spouse may receive up to $661 per month. There may be an additional payment available if the spouse is at home with dependent children. This is especially significant if there is a disabled child who is living at home and dependent on the parent for support, as this circumstance may increase the VA benefit further.
A slightly higher monthly payment may also be available to wartime veterans who are confined to their home for medical reasons. An unmarried veteran may receive up to $1,204 per month, and a married veteran may receive up to $1,510 per month. If there is a surviving spouse in the home, he or she may receive up to $808 per month, again, with additional benefits available in some cases if there are dependent children.
One of the most popular and most-frequently used benefits is called the pension with aid and attendance (A&A). This benefits veterans or spouses who require assistance to perform activities of daily living (ADL), or those residing in an assisted-living facility or nursing home. A&A offers the highest monthly payment. Usually a care manager, social worker, or admissions director at a facility will suggest that a veteran apply for this benefit. An unmarried veteran may receive up to $1,644 per month, and if married, they may receive up to $1,949 per month, while a surviving spouse may receive up to $1,056 per month. There are also additional funds available for a dependent child. It is noteworthy that this type of benefit is available to veterans who served during wartime, but did not necessarily serve directly in the war overseas, and this veteran must also be either disabled or over the age of 65.
To receive A&A benefits you also must have served 90 days of active duty, with at least 1 day beginning or ending during any period of war. After Sept. 1, 1980, the active-duty requirement increased to 180 days, and you must have been discharged under circumstances other than dishonorable. You must also be unemployable and reasonably certain that you will be unemployable in the future. In addition, you must suffer from a disability that makes it impossible for you to stay gainfully employed.
There are also additional tests to ensure that a veteran or spouse will qualify for benefits. At the current time, a married veteran and spouse may have no more than $80,000 in countable assets (this excludes a home and vehicle). A single veteran or surviving spouse must have less than this amount. This is somewhat of a guideline, and it is anticipated in the future that there will be stricter guidelines for determining eligibility.
Also, currently, there is no transfer penalty for gifting or transferring of assets for the purchase of an annuity or establishment of an irrevocable trust. However, any transfers are still countable for Medicaid purposes if you or your spouse need long-term care benefits in the future. It is very important that legal counsel is considered in this type of situation to be sure that all issues regarding gift taxes, Medicaid issues, veterans benefits, and all other estate-planning considerations are reviewed before any transfers are made irrevocably.
The veteran or the veteran’s spouse must have ‘income for veteran’s purposes’ that is less than the benefit for which you are applying. This amount, known as IVAP, is calculated by taking your gross income from all sources, less countable medical expenses. Countable medical expenses are considered those that are out of pocket and recurring on a continuous basis, and are expected to be paid throughout your lifetime. In the event that your IVAP is greater than or equal to the annual benefit amount, then you will not qualify for VA benefits.
If you or your spouse qualify for a regular pension and are housebound, your maximum allowable increases, as does the annual benefit amount. The VA defines housebound as being substantially confined to the home or immediate premises due to a disability that will likely remain throughout your lifetime. A veteran with no benefits who is housebound is eligible for benefits of up to $14,457 annually. A surviving spouse with no dependents who is housebound must have an IVAP of less than $9,696.
If the veteran or spouse is able to establish through medical evidence that they require the aid and attendance of another person to perform the ADLs, a special monthly pension may be provided. The VA defines the need for aid and attendance as:
• Requiring the aid of another person to perform at least two activities of daily living, such as eating, bathing, dressing, or undressing;
• Being blind or nearly blind; or
• Being a patient in a nursing home.
In the event that the applicant or recipient of VA benefits is institutionalized, then a substantial portion of those funds would probably have to be paid to the long-term care facility that is providing the benefits.
The application process for special monthly pension benefits from the VA may be somewhat tedious and slow. While the VA is attempting to process applications more quickly, the current delay is anywhere from six months to a year. When filing an application, be sure to submit all information on time and in a single package, maintaining copies of all documents in your own file in the event that they are misplaced by the VA.
Remember to include your discharge paper (DD-214) with medical evidence, proof of medical expenses, verifications from physicians, a death certificate of a deceased veteran, marriage certificate, and the properly completed application. Once the application has been approved, benefits may be retroactive to the month after the month the application was received.
Time is of the essence in filing an application, so benefits may begin as soon as possible. Again, it is important to consider consulting an appropriate legal advisor, usually an elder-law attorney, or possibly an attorney who has been certified through the Veterans’ Administration, as only those who are certified may file appeals on behalf of a client.

Attorney Hyman G. Darling is chairman of Bacon Wilson, P.C.’s Estate Planning and Elder Law departments. His areas of expertise include all areas of estate planning, probate, and elder law. Darling is accredited by the Department of Veterans Affairs (VA) to prepare, present, and prosecute claims for veterans before the VA. He hosts a popular estate-planning blog at bwlaw.blogs.com; (413) 781-0560; baconwilson.com

40 under Forty Preview

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40under40-LOGO2011
Sections Supplements
Fifth Amendment

40under40-LOGO2011Nominations Sought for the Class of 2011

Since BusinessWest launched 40 Under Forty in 2007, it has recognized 160 young professionals who have made their mark across Western Mass. — not only for their career success, but their commitment to their communities. Now in year five, the 40 Under Forty program — which includes a must-read issue profiling the winners and an always-well-attended gala in the spring — has become one of the most anticipated events in the region’s business community, one that has nominees constantly setting the bar higher.

By JOSEPH BEDNAR

Jeff Fialky understands what it takes to succeed in business today.
An attorney with Bacon & Wilson, P.C., Fialky was chosen one of BusinessWest’s 40 Under Forty in 2008, in recognition of his career success and community involvement. He’s one of 160 young professionals throughout Western Mass. who have been honored in this way since the program’s inception in 2007.
But as president of the Young Professional Society of Greater Springfield, he’s got a clearer perspective than most on the dedication it takes to succeed at a young age, because he sees it every day in fellow YPS members.
“In this economy, there are a lot of start-up entrepreneurs, a lot of young professionals working maybe twice as hard as they’d have to work in a better economy,” Fialky said. “It’s great that we can promote some of these individuals who have distinguished themselves from their peers.”
Now entering its fifth year with a call for nominations, BusinessWest’s 40 Under Forty has captured the respect of the region’s business community and continues to demonstrate that Western Mass. is home to a creative, motivated, and successful group of young business leaders, entrepreneurs, and innovators — people who are redefining what it means to build successful businesses and serve their communities with whatever spare time they have left over.
“Clearly, YPS and 40 Under Forty have walked a parallel path,” said Fialky, noting that both came into being around the same time. “In that time period, YPS participants — meaning both the membership and officers and directors — have looked at 40 Under Forty with extremely high regard, as a competitive process, a reward, and a distinction in the community that is heavily sought after.”
Kate Campiti, BusinessWest’s associate publisher, is gratified to hear that 40 Under Forty has reached that kind of status in the local business community.
“It makes me proud that it’s something that people aspire to, and it does put them on the map,” she said. “It’s something they can use as a résumé builder, as a symbol of excellence.”
As the nomination process opens for the class of 2011, BusinessWest expects another flood of nominees from a broad range of careers; the 160 previous honorees have emerged from law, education, retail, health care, social services, finance, and many, many other fields. In all cases, they have been successful in business and active in civic volunteerism, the latter being a critical consideration when judging applicants.
As in the past four installments of 40 Under Forty, this year’s winners — chosen by a panel of judges comprised of area business leaders and previous honorees — will be profiled in an upcoming issue of BusinessWest (always a must-read issue) and toasted at a gala reception in the spring.
Meghan Lynch, managing partner for Six-Point Creative Works and one of last year’s honorees, said she was impressed with the wide variety of industries and positions represented by the class of 2010.
In addition, “I was happy with the amount of community support at the event,” she said. “That was a fantastic networking event, and when I left I was proud to have been a part of it. I made quite a few contacts at the event, and the winners have been really good about reaching out to one another, making time to reconnect and get to know each other afterward. I was definitely impressed with a lot of other folks, and it was certainly a very good representation of the talent in the Valley.”
The nomination form can be found on page 35 of this issue. It will be reprinted in upcoming issues as well, and may also be printed from businesswest.com. The deadline for entry is Feb. 18.
Fialky says members of YPS take the nomination process seriously, as evidenced by the healthy number of society members chosen for recognition during the past four years. The same goes for Northampton Area Young Professionals, another group that’s typically well-represented in each class.
“I personally congratulate members of YPS who are 40 Under Forty honorees every year — I send out handwritten cards — and that number has increased exponentially over the past few years,” Fialky said. “It’s terrific that both the Young Professional Society and the 40 Under Forty have walked down these same paths.”
Campiti said the ever-increasing profile of the recognition program is cultivating a healthy sense of competition among area professionals.
“I think it’s making them more competitive with each other, and it is making the young up-and-comers think about their future and plan strategically how they will position themselves. That only makes the group stronger. To win, they really have to stand out.”
Fialky also embraces the competitive aspect of the event, saying that being chosen one of the 40 Under Forty is an honor worth striving for.
“The competition raises the bar for everyone,” he said. “Some folks have submitted nomination forms for a couple of years and haven’t been elected, and that only makes them think they need to work harder in the community and from a personal-branding standpoint. I think that’s great.”

Past 40 under Forty winners

Class of 2007
William Bither III, Atalasoft
Kimberlynn Cartelli, Fathers & Sons
Amy Caruso, MassMutual Financial Group
Denise Cogman, Springfield School Volunteers
Richard Corder, Cooley Dickinson Hospital
Katherine Pacella Costello, Egan, Flanagan & Cohen, P.C.
A. Rima Dael, Berkshire Bank Foundation of Pioneer Valley
Nino Del Padre, Del Padre Visual Productions
Antonio Dos Santos, Robinson Donovan, P.C.
Jake Giessman, Academy Hill School
Jillian Gould, Eastfield Mall
Michael Gove, Lyon & Fitzpatrick, LLP
Dena Hall, United Bank
James Harrington, Our Town Variety & Liquors
Christy Hedgpeth, Spalding Sports
Francis Hoey III, Tighe & Bond
Amy Jamrog, The Jamrog Group, Northwestern Mutual
Cinda Jones, Cowls Land & Lumber Co.
Paul Kozub, V-1 Vodka
Bob Lowry, Bueno y Sano
G.E. Patrick Leary, Moriarty & Primack, P.C.
Todd Lever, Noble Hospital
Audrey Manring, The Women’s Times
Daniel Morrill, Wolf & Company
Joseph Pacella, Egan, Flanagan & Cohen, P.C.
Arlene Rodriquez, Springfield Technical Community College
Craig Swimm, WMAS 94.7
Sarah Tanner, United Way of Pioneer Valley
Mark Tanner, Bacon Wilson, P.C.
Michelle Theroux, Child & Family Services of Pioneer Valley Inc.
Tad Tokarz, Western MA Sports Journal
Dan Touhey, Spalding Sports
Sarah Leete Tsitso, Fred Astaire Dance
Michael Vann, The Vann Group
Ryan Voiland, Red Fire Farm
Erica Walch, Speak Easy Accent Modification
Catherine West, Meyers Brothers Kalicka, P.C.
Michael Zaskey, Zasco Productions, LLC
Edward Zemba, Robert Charles Photography
Carin Zinter, The Princeton Review

Class of 2008
Michelle Abdow, Market Mentors
Matthew Andrews, Best Buddies of Western Mass.
Rob Anthony, WMAS
Shane Bajnoci, Cowls Land & Lumber Co.
Steve Bandarra, Atlas TC
Dr. Jonathan Bayuk, Hampden County Physician Associates
Delcie Bean IV, Valley Computer Works
Brendan Ciecko, Ten Minute Media
Todd Cieplinski, Universal Mind Inc.
William Collins, Spoleto Restaurant Group
Michael Corduff, Log Cabin Banquet and Meeting House
Amy Davis, New City Scenic & Display
Dave DelVecchio, Innovative Business Systems Inc.
Tyler Fairbank, EOS Ventures
Timothy Farrell, F.W. Farrell Insurance
Jeffrey Fialky, Bacon Wilson, P.C.
Dennis Francis, America’s Box Choice
Kelly Galanis, Westfield State College
Jennifer Glockner, Winstanley Associates
Andrea Hill-Cataldo, Johnson & Hill Staffing Services
Steven Huntley, Valley Opportunity Council
Alexander Jarrett, Pedal People Cooperative
Kevin Jourdain, City of Holyoke
Craig Kaylor, Hampden Bank / Hampden Bancorp Inc.
Stanley Kowalski III, FloDesign Inc.
Marco Liquori, NetLogix Inc.
Azell Murphy Cavaan, City of Springfield
Michael Presnal, The Federal Restaurant
Melissa Shea, Sullivan, Hayes & Quinn
Sheryl Shinn, Hampden Bank
Ja’Net Smith, Center for Human Development
Diana Sorrentini-Velez, Cooley, Shrair, P.C.
Meghan Sullivan, Sullivan, Hayes & Quinn
Michael Sweet, Doherty Wallace Pillsbury & Murphy
Heidi Thomson, Girls Inc.
Hector Toledo, Hampden Bank
William Trudeau Jr., Insurance Center of New England
David Vermette, MassMutual Financial Services
Lauren Way, Bay Path College
Paul Yacovone, Brain Powered Concepts

Class of 2009
Marco Alvan, Team Link Brazilian Jiu Jitsu
Gina Barry, Bacon Wilson, P.C.
Maggie Bergin, The Art of Politics
Daniel Bessette, Get Set Marketing
Brandon Braxton, NewAlliance Bank
Dena Calvanese, Gray House
Edward Cassell, Park Square Realty
Karen Chadwell, Doherty, Wallace, Pillsbury and Murphy, P.C.
Kate Ciriello, MassMutual Financial Group
Kamari Collins, Springfield Technical Community College
Mychal Connolly Sr., Stinky Cakes
Todd Demers, Family Wireless
Kate Glynn, A Child’s Garden and Impish
Andrew Jensen, Jx2 Productions, LLC
Kathy LeMay, Raising Change
Ned Leutz, Webber & Grinnell Insurance Agency
Scott MacKenzie, MacKenzie Vault Inc.
Tony Maroulis, Amherst Area Chamber of Commerce
Seth Mias, Seth Mias Catering
Marjory Moore, Chicopee Public Schools
Corey Murphy, First American Insurance Agency Inc.
Mark Hugo Nasjleti, Go Voice for Choice
Joshua Pendrick, Royal Touch Painting
Christopher Prouty, Studio99Creative
Adam Quenneville, Adam Quenneville Roofing
Michael Ravosa, Morgan Stanley
Kristi Reale, Meyers Brothers Kalicka, P.C.
Amy Royal, Royal & Klimczuk, LLC
Michelle Sade, United Personnel
Scott Sadowsky, Williams Distributing Corp.
Gregory Schmidt, Doherty, Wallace, Pillsbury & Murphy, P.C.
Gretchen Siegchrist, Media Shower Productions
Erik Skar, MassMutual Financial Services
Paul Stallman, Alias Solutions
Renee Stolar, J. Stolar Insurance Co.
Tara Tetreault, Jackson and Connor
Chris Thompson, Springfield Falcons Hockey Team
Karl Tur, Ink & Toner Solutions, LLC
Michael Weber, Minuteman Press
Brenda Wishart, Aspen Square Management

Class of 2010
Nancy Bazanchuk, Disability Resource Program,
, , Center for Human Development
Raymond Berry, United Way of Pioneer Valley
David Beturne, Big Brothers Big Sisters of Hampden County
Maegan Brooks, The Law Office of Maegan Brooks
Karen Buell, PeoplesBank
Shanna Burke, Nonotuck Resource Associates
Damon Cartelli, Fathers & Sons
Brady Chianciola, PeoplesBank
Natasha Clark, Springfield School Volunteers
Julie Cowan, TD Bank
Karen Curran, Thomson Financial Management Inc.
Adam Epstein, Dielectrics Inc.
Mary Fallon, Garvey Communication Associates
Daniel Finn, Pioneer Valley Local First
Owen Freeman-Daniels, Foley-Connelly Financial Partners and
, , Foley Insurance Group
Lorenzo Gaines, ACCESS Springfield Promise Program
Thomas Galanis, Westfield State College
Anthony Gleason II, Roger Sitterly & Son, Inc. and
, , Gleason Landscaping
Allen Harris, Berkshire Money Management Inc.
Meghan Hibner, Westfield Bank
Amanda Huston, Junior Achievement of Western Mass. Inc.
Kimberly Klimczuk, Royal, LLP
James Krupienski, Meyers Brothers Kalicka, P.C.
David Kutcher, Confluent Forms, LLC
James Leahy, City of Holyoke and Alcon Laboratories
Kristin Leutz, Community Foundation of Western Mass.
Meghan Lynch, Six-Point Creative Works
Susan Mielnikowski, Cooley, Shrair, P.C.
Jill Monson, Adam Quenneville Roofing & Siding Inc.
, , and Inspired Marketing & Promotions
Kevin Perrier, Five Star Building Corp.
Lindsay Porter, Big Y Foods
Brandon Reed, Fitness Together
Boris Revsin, CampusLIVE Inc.
Aaron Vega, Vega Yoga & Movement Arts
Ian Vukovich, Florence Savings Bank
Thomas Walsh, City of Springfield
Sean Wandrei, Meyers Brothers Kalicka, P.C.
Byron White, Pazzo Ristorante
Chester Wojcik, Design Construction Group
Peter Zurlino, Atlantico Designs and Springfield Public Schools

Joseph Bednar can be reached
at [email protected]

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