| Oregon State Bar Bulletin — MAY 2009 |
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Clients are calling with questions, and law firms are scrambling to find answers, as the impact of the gigantic federal stimulus bill hits home.
Many Oregon firms quickly mobilized in February and March to sift through the lengthy legislative package in order to help clients who are affected by or can benefit from the American Recovery and Reinvestment Act of 2009 and related administrative policies.
“It’s far-reaching in its impact,” says Todd A. Hanchett of Barran Liebman. “It hits on a broad spectrum of areas that impact businesses in a variety of ways that they might not have have experienced before.”
The opportunities for many businesses are enticing, but the contracting process is complex, as will be the accountability requirements for those receiving stimulus funds. All of these elements require legal advice and participation.
“The federal government has said, ‘If you want this money, you have to play by these rules,’” Hanchett says. “‘You don’t have to take the money, but if you want it, here are the strings attached.’”
The legislation, signed by the president Feb. 17, provides $787 billion intended to create and maintain jobs and to spur economic growth. Of the total, tax relief accounts for $212 billion. The other $575 billion will be disbursed by federal agencies through construction and other contracts and grants to state and local governments and nonprofit organizations.
Of that total, Oregon is expected to receive $2.4 billion over three years.
In response, firms are sponsoring seminars and releasing informational updates to clients and prospective clients.
“We’re beginning communications with clients. We’re educating them,” Stephen W. Horenstein of Miller Nash said in mid-March. Miller Nash established an internal “client-focused stimulus task force,” he says. “It’s amazing what we’ve found. We had a group review the act. We found about a dozen provisions that affect our clients.”
At about the same time, Davis Wright Tremaine also formed an internal task force to analyze the areas that immediately might affect their clients in energy- and telecommunications-related industries, including opportunities for grants and loans, says John DiLorenzo, co-chair of the government relations practice. He emphasizes the short time frame available on many of the federal government agencies’ grants.
“That’s why it’s important to businesses that could benefit. They need to know right away,” he says, noting that money funneled to the state by the Department of Energy had to be applied for by the last full week in March. One of the stipulations for that money is that Oregon must adopt tougher building codes for energy conservation. “Some of our clients benefit from that if the states goes that route,” he adds.
The stimulus package also includes a “Buy American” provision, which requires that all construction related to public works or public buildings must use American-made steel, iron or manufactured goods. Lawyers say the provision is unclear, and it allows for waivers if certain conditions are met — two factors that create opportunities for work for law firms, DiLorenzo says. “There are a lot of questions people have right now.”
“A fast-moving area”
As an example of the response, Lane Powell’s Dominic G. Colletta, of the firm’s real estate practice group, led a March
20 seminar for the firm titled “How Your Business Can Benefit from Federal and State Stimulus Programs,” intended for chief financial officers, tax directors, CPAs, corporate counsel and business owners.
The firm formed an internal task force for Oregon and Washington, asking each practice group “to really focus on areas they and their clients will have the most access to, to make sure we get information out to clients, to help them take advantage,” he says.
Lane Powell issued five client bulletins between Feb. 17, the day the bill became law, through March 12. Topics were particularly geared toward clients such as financial institutions and clients in the construction field, both of which will see immediate impacts from the legislation, he says.
According to Colletta, the state’s intent is to sign $175 million worth of construction contracts for “shovel-ready” projects by the end of June.
“There are a large number of projects out there sitting, ready for permitting,” but until now there has been no money available such as for purchasing equipment for renewable energy projects, he says. “There’s just a tremendous amount of money being thrown at this situation. It’s pretty spectacular.”
“It’s a fast-moving area; everybody is talking to everybody,” confirms an optimistic William H. Holmes of Stoel Rives, who chairs the firm’s energy and telecommunications practice group. For his specialty field, the stimulus package will have immediate effects.
“It really was a shot in the arm to the renewable energy business,” he says, explaining that renewable energy normally is “investment tax-credit driven. But since October, there has not been a lot of tax-credit appetite.” However, after Congress established production tax credits and cash grants from the Department of the Treasury, things are starting to turn around.
“A lot of projects that were slowed down are getting back on the drawing board. We’re seeing that. We’re getting calls about projects from around the world,” says Holmes. “The stimulus bill has had a stimulating effect.”
The administration’s emphasis on alternative energy sources “means more cash will be available over the next two years,” says Roby Roberts, director of external affairs for Vestas American Wind Technology Inc. “We think this is a really good first step.”
Still, Holmes acknowledges that his area wasn’t hit as hard as the transactions side of law. White & Lee’s Scott W. Davidson, who represents emerging growth companies seeking financing, says the time frame for improvement will be longer for the type of work he handles.
“Certainly we’ve seen a downturn. There’s a lot of money on the sidelines,” he told the Bulletin in mid-March. Companies involved with infrastructure improvement such as construction will see a more immediate impact, says Davidson. But “things look better than they would have two months ago (without the legislation).
“The overall act in the marketplace and the need for products and services will be a stimulus for all types of companies. The rising tide will lift all boats eventually.”
“The big impacts will come if the stimulus package is effective in opening up the credit markets,” adds Lane Powell’s Colletta, who chairs the OSB Real Estate and Land Use Section. If banks can take bad credit off their books, that means they can reduce their reserves, which frees up more money for lending, he says. “If that happens, there’s a significant amount of demand.”
Adjusting to changes
Another practice response firms are making right now is regulatory. Because the government likely is moving to a more heavily regulated environment, firms are responding to that.
Lawyers are anticipating that their regulated clients, such as banks, security firms and utilities, will be looking to them for answers as to how to do business under the new administration, how to avoid roadblocks and stay out of trouble, and how to get hold of their share of the money being doled out.
For instance, government investigations of businesses by the Internal Revenue Service has “greatly intensified due to the tax gap — what people pay and what they should have paid,” observes Larry J. Brant of Garvey Schubert Barer. That gap stands at $345 billion a year, he says.
All businesses that provide health insurance for their employees also will be affected by changes in the COBRA laws related to layoffs. Oregonians who lose their jobs between Sept. 1, 2008 and Dec. 31, 2009 and worked for businesses that offered health insurance were eligible for health insurance premium assistance beginning on March 1. The total number of employees at the business defines whether assistance is provided through COBRA or through the state health insurance continuation program.
Before the stimulus bill, some employees who were involuntarily terminated might not have applied for COBRA benefits because they did not have enough money to pay the premium, says Barran Liebman’s Hanchett, who specializes in labor and employment law.
“Now they have the opportunity to do that,” and have to pay only 35 percent of the premium, while their former employer pays the remaining 65 percent for up to nine months. For the state health insurance continuation program, the ratios are the same, but the coverage lasts for six months.”
Employers are reimbursed by the federal government in the form of credits against their payroll taxes or as refunds, he explains.
“This is a brand-new provision that has created a fair amount of work for employers. They have to go back and figure out who got terminated, and notify the employee that they might be eligible for this subsidy. A lot of the work is the notification: What should those forms look like? What changes need to be made to the plan? It’s a fairly involved process.”
Other provisions in the stimulus package include those intended to prevent and discover waste, fraud and abuse, such as one to protect whistle-blowers. Private employers who receive stimulus money are prohibited “from retaliating against an employee who discloses information about an employer who wastes funds from the stimulus,” says Hanchett. “It does create an extra protection that employers ought to be aware of.”
Another provision requires certain recipients of stimulus money to observe a Davis-Bacon Act prevailing-wage rate that normally employers might not be subject to.
Refocusing internally
Despite the positive energy many law firms are feeling about the stimulus bill, business and employment lawyers still by necessity are having to exert much of their efforts on issues related to the persistent economic downturn. “The hard economic times cause employers to take a look at options they might not have considered, to deal with a situation that is unprecedented in recent history,” says Hanchett. “We’re spending a lot of our time dealing with the negative aspects of the economy,” explains Brant of Garvey Schubert Barer. He says that in the current economy, “law firms needs to pay close attention to prudent business practices.” Brant, who chairs the firm’s tax and benefits practice group and is a past managing director of the firm, advises that firms should:
• Examine their policies about which clients they represent, and ensure that those clients understand the business arrangement.
• Make sure that they obtain a reasonable client retainer.
• Properly monitor accounts receivable.
• Keep a good handle on expenses, such as weighing needs for personnel and office space.
• Maintain strong productivity by discerning opportunities
during these times and as a result of the stimulus bill.
In addition, some firms may want to look at converting lawyers from a practice such as real estate into a practice area that may get busier, such as contracts with the government or renewable energy, says Linda Green Pierce of Northwest Legal Search Inc.
In doing so, firms must not forget to emphasize good internal communication within the firm, so that everyone is on the same page, and in order to enhance practice cohesiveness — how practices mesh with each other and with the firm overall.
“It may be an overall plus for a law firm to shed a practice that was economically misaligned to the firm all along,” she notes. “On the other hand, for a firm which was already in economic distress, these kind of changes—because they not only are economical, but also cultural—could put them over the edge.
“Lawyers are historically uncomfortable with change. Firms that can embrace change, and have a history of doing so already, will respond and do well. Others could flounder in trying to make these transitions.”
ABOUT THE AUTHOR
Cliff Collins is a Portland-area freelance writer and a frequent contributor to the Bulletin.
© 2009 Cliff Collins