BMJ Stone
EZG Manufacturing
Federated Insurance
Fraco USA, Inc.
Hohmann and Barnard, Inc.
Hydro Mobile, Inc.
iQ Power Tools
Kennison Forest Products, Inc.
Mortar Net Solutions
Non-Stop Scaffolding
Pullman Ermator
Southwest Scaffolding
Tradesmen's Software, Inc.
January 10, 2001 9:36 AM CST

Skilled Workforce Enhancement Act

The targeted tax credit for apprentice training


At press time, the 106th Congress is coming to a close with a mini lame-duck session. The 106th has seen an explosion of interest in the Skilled Workforce Enhancement Act, also known as "SWEA".

SWEA is a bill that would allow small businesses a substantial targeted tax incentive to train new workers in certain highly skilled trades.

I requested that mason contractors who train new masons be eligible for this benefit and offered language on Capitol Hill to make this happen. SWEA now specifically identifies "the trade of masonry" as one of the targeted trades.

Less than two years ago, the prospects for SWEA were bleak. In April of 1998 when the bill first came on my radar screen, the bill had only a handful of cosponsors, no cost estimate, little factual record to support its passage, no congressional hearings and many unanswered questions in the bill language.

In a year of focused work on the Hill, we have turned the situation around completely. SWEA is now seen at the highest levels of government as a proposal to be taken very seriously.

Here is what we bring to the table today: we have a robust coalition of strong industry groups backing the bill. The number of cosponsors has skyrocketed to 89 -- and reflects a healthy bipartisanship. Many of these cosponsors have senior positions on key committees. We have secured a favorable cost estimate from the congressional Joint Committee on Taxation. We had a very successful hearing before the House Committee on Small Business, during which I testified in favor of the bill in general and for the trade of masonry specifically.

We ramped-up so rapidly that Speaker Hastert considered moving the bill to the House floor this year.

The progress made in 2000 has been remarkable. In fact, it is quite possible the bill could have passed this year -- IF supporters of the legislation had been willing to cut the size of the tax benefit. However, the consensus among supporters was that we should keep our powder dry until 2001, when a favorable political climate may allow passage while keeping all or most of the tax credit we are now seeking.

I am one of the strongest proponents of this strategy. I feel SWEA's supporters will have a very good chance at gaining passage next year with the bill nearly intact.

We are heading into the 107th Congress with a strong hand. We hope for a good result in 2001, one that will produce a hefty financial incentive - and reward - to small businesses that train new masons.

The Facts: Building the Case for SWEA
America's skilled workforce is facing a crisis as large numbers of older skilled workers approach retirement age. Insufficient numbers of new apprentices are entering apprenticeships to meet the needs of an expanding economy.

Existing training programs provide quality training, but are failing to keep up with growing demand and increasing retirements of current skilled workers.

If current trends continue, the lack of skilled workers in many highly skilled trades will cause shortages, construction delays and cost increases. There will be reduced quality and safety on the jobsite. And there will be many other deleterious impacts throughout the U.S. economy.

The shortages are no more crucial than in the trade of masonry. Estimates vary, but one calculation indicated the national shortage of masons in 1995 was 6,300 to 13,000, and growing. The average age of current masons is rising rapidly. The average age of new apprentices is rising rapidly. Unusually large numbers of retirements are expected in the next ten years.

Many industries dependent on highly skilled workers are experiencing the same problem.

Why Is This Happening in the Skilled Trades?
We begin with the demographics of our society. There is a decreasing pool of workers entering the workforce, and this trend will continue.

Social factors play a large role, too. There is great competition with high-tech industries. High schools promote college, not careers in trades. There is a sea change of attitudes toward the trades and manual labor. And there are long-term commitments required for apprenticeships.

In order to address this problem, businesses will need to attack it by getting directly involved in mason training, more than ever before.

Yet, most small businesses that might provide on-the-job or employer-supported apprenticeships are not doing so or cannot do so because of the huge costs, business disruption, time commitments and risks involved.

Long-term issues like training are not the focus of most small businesses. Small businesses must meet the current payroll and fix this week's problem to stay alive. Further, training diverts existing skilled workers from current projects. Recruitment and training of new apprentices is expensive and time-consuming. Trainees cannot become fully income-producing and work independently for years.

And there are other risks. Trainees can take their new skills and leave immediately to work elsewhere.

Nonetheless, the problem is growing and will reach dangerous proportions unless the trends are reversed.

The solution is to enlist the vast army of small businesses in America who need these workers, have the facilities and the will to train new workers, and then provide a tax credit to make it financially feasible.

The Federal Government's Risk
So, even if all of this is true, what is the rationale for the government to get involved?

The federal government has a strong and clear interest in ensuring a skilled workforce sufficient to meet the quantitative and qualitative needs of a growing economy. These interests are both general and specific: general in terms of the overarching need to foster stable economic expansion and job growth, with low inflation and ready workforce availability (especially in foundation industries like construction, which affect economic activity throughout the economic food chain); specific, due to the government's role as a customer, whose increased costs are borne by the U.S. Treasury and eventually passed on to the taxpayer. The federal government is the world's largest single construction customer.

Any shortage of skilled workers would affect government at all levels -- federal, state, and local.

We need government action now. This is a case where government cannot afford to wait until the crisis hits before taking action. Workforce shortages are always a problem, but skilled workforce shortages have an additional vexing characteristic: they require years to remedy. Workforce shortages in the trades will be difficult if not impossible to resolve quickly once shortages become a crisis. There is a long developmental time for masonry skills. The long lead-time itself becomes a barrier to entry into the masonry field, both for the prospective tradesworkers and the companies that must make the investment in training. The only reasonable course from a policy standpoint is to act pre-emptively.

The Nitty-Gritty of SWEA
SWEA is the tax instrument that would help small businesses overcome the impediments to employer-based training. SWEA would allow small business employers a tax credit for training apprentices in any of the highly skilled trades specified in the bill (including the trade of masonry). The credit would offset expenses for each qualifying apprentice up to $15,000 per year, per apprentice, for employment and training costs. The credit would accrue to the employer paying the employment/training costs. The credit would offset costs of training either by employers directly or by multi-employer facilities to which employers send apprentices for training.

This is a credit limited to small businesses and as such would be available to companies that employ, on average, fewer than 250 employees per business year.

The credit would be triggered by serious, concentrated "full-time" training of apprentices. As currently drafted, the bill would require that apprentices work at least 2000 hours per year to qualify for the credit. Virtually all time spent by the apprentice working in the trade would count toward the requirement, including classroom time. At the request of some groups that feel weather delays might make the 2000 hour limit difficult to meet, I drafted an existing agreement to reduce the yearly requirement to 1500 hours.

While the 1500-hour requirement should be suitable in most cases for the trade of masonry, some have indicated that other intervening factors might cause problems meeting even this more lenient requirement. It might be possible to obtain a further hour reduction to ensure that serious and reasonable apprenticeships in the trade of masonry would qualify, even in the face of extraordinary delays in a given year. I plan to investigate this further as we prepare for re-introduction in the 107th.

Who Supports and Opposes SWEA?
Members of Congress, both Republican and Democrat, who appreciate the need for a strong skilled workforce support SWEA.

Liberal Democrats have expressed strong enthusiasm for SWEA, not so much for its impact on small businesses, but its potential for lifting the futures of under-educated, under-employed individuals in blighted areas.

SWEA can put people who need training in direct contact with employers who can train them - and provide a good paycheck thereafter.

SWEA can help develop the stable, local resident middle class needed to settle blighted neighborhoods. Many apprentices will go on to start their own small businesses. Think of SWEA as a highly efficient jobs program for people who have slipped through he cracks in education, but still want to obtain high-paying jobs.

Conversely, labor union interests have stated objections to the bill. A unit of the AFL-CIO Washington DC office sent a letter to the Hill opposing SWEA, based on costs and a lack of quality standards. In the realm of criticism, I consider the letter to present minimal opposition. The standards issue can and will be addressed by language I have drafted.

[Note: while AFL-CIO officially opposes SWEA, their witness at the SWEA hearing earlier this year requested that if the bill passes, that the bill be EXPANDED to cover apprenticeships up to five years. The current bill is limited to four years.].

Actually, labor unions should support the bill. SWEA is labor-neutral. Nothing in SWEA alters, supplants or detracts from existing union training programs in any way. In fact, unions will benefit in terms of increased membership. Multi-employer training sites (mostly union-based) will be eligible for the credit.

2001: The 107th Congress
Though it is always a major fight to pass a new tax credit, the outlook for SWEA in 2001 is one of cautious optimism. We have cultivated strong cosponsorships from key Members of Congress on the House Ways and Means Committee. We expect the incoming Chairman to have a much more favorable view of targeted tax credits than his predecessor. We expect a general tax reform bill that could provide a vehicle for SWEA as an amendment. We retain all the positive elements of SWEA without having negotiated away any important provisions - most importantly, the size of the tax credit.

We can never predict a specific outcome, but we enter the next year and the next Congress in good shape to get SWEA through Congress and on the way to the President's desk.

About the Author

Randall G. Pence, Esq. of Capitol Hill Advocates, Inc. is a Washington lobbyist representing business clients on legislative and regulatory policies affecting construction, construction products, and housing.


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